Oil prices reversed earlier losses and inched up in Asian trade today, supported by a weaker US dollar and falling diesel inventories, while Saudi Arabia and Washington continued to clash over plans by OPEC+ to slash production.
Brent crude futures rose 31 cents, or 0.3%, to $94.88 per barrel early this morning.
US West Texas Intermediate (WTI) crude futures were up 36 cents, or 0.4%, at $89.47 per barrel.
“The softened US dollar and the strong rebound in risk assets lifted oil prices. The rebounding momentum may continue into today’s Asian session,” said Tina Teng, an analyst at CMC Markets.
A weaker dollar usually makes dollar-denominated commodities like oil cheaper for holders of other currencies.
“OPEC+’s output cut will keep supporting crude prices, along with a possible recovery in China’s demand in the fourth quarter if Beijing loosens up COVID curbs,” Teng added.
China, the world’s largest crude oil importer, has been fighting Covid flare-ups after its week-long National Day holiday earlier this month and just ahead of a key Communist Party Congress where President Xi Jinping is expected to extend his leadership.
The country’s infection tally is small by global standards, but it adheres to a zero-Covid policy which is weighing heavily on economic activity.
Both Brent and WTI contracts were down for the week by about 3% after two prior weeks of gains amid recession concerns.
“Crude prices had a rough week. The demand outlook got crushed as global recessionary fears intensified on concerns inflation will force the Fed to overtighten policy and as China continues to deal with Covid lockdowns,” said OANDA analyst Edward Moya.
“Last week was all about the OPEC+ production cut and this week was about a deteriorating global outlook that will prevent this market from staying very tight.”
The Organization of Petroleum Exporting Countries and allies, known as OPEC+, announced last week a 2 million barrel per day cut in oil production targets.
Saudi Arabia, OPEC+’s de factor leader, and the US have clashed over the decision. Saudi Arabia rejected criticisms by Washington as “not based on facts” and that the US request to delay the cut by a month would have had negative economic consequences.
The White House said it presented the Saudis with an analysis that showed the reductions could hurt the global economy and alleged the Saudis pressured other OPEC members on a vote. Officials with both countries are expected to continue discussions soon.
Oil prices were also supported by a steep drawdown in US distillate stocks that came as heating oil demand is expected to rise as winter approaches.
Distillate stockpiles, which include diesel and heating oil, fell by 4.9 million barrels to 106.1 million barrels, their lowest since May, compared to expectations for a 2 million-barrel drop, according to the US Energy Information Administration yesterday.
This comes amid a larger-than-expected surge in US crude oil in storage, along with a rise in gasoline stocks.
Crude inventories grew by 9.9 million barrels in the week to October 7 to 439.1 million barrels, added the EIA, far larger than analysts’ expectations in a Reuters poll for a 1.8 million-barrel rise.