Oil Pushes Higher as China and India Combine to Boost Outlook

(Bloomberg) — Oil rose as data showing a strong recovery in Chinese factory activity reinforced the outlook for energy demand in the world’s biggest crude importer and offset concern about rising US inventories.

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West Texas Intermediate advanced toward $78 a barrel, erasing an earlier drop. China’s manufacturing activity recorded the biggest monthly improvement in more than a decade in February after Covid Zero was ditched last year. Oil’s jump came alongside gains in other commodities like copper.

There were positive signals from India, too. Domestic refined oil-product sales in the South Asian nation, a key crude importer, surged in February, with double-digit rises for gasoline, diesel and jetfuel. In addition, Indian buyers are joining Chinese consumers to take oil cargoes from Russia’s Far East.

Crude remains lower this year as the prospect of tighter US monetary policy and rising inventories have so far outweighed optimism that Chinese demand will strengthen as activity picks up. Russian flows are also in focus as western sanctions and bans linked to the war in Ukraine tighten. Although Moscow has largely managed to keep exports going by finding new buyers, there are signs of friction in markets including India, a key outlet for Russian crude.

“Prices might gain support from signs of an economic rebound from the world’s largest oil importer,” said Ravindra Rao, head of commodities research at Kotak Securities Ltd. in Mumbai, referring to China. “The nation’s crude consumption is expected to hit pre-pandemic highs and might contribute to most of the global oil demand in 2023.”

Heading into March, Russia has said it planned to cut supply by 500,000 barrels a day from this month, presenting that decision as retaliation against sanctions. The European Union, however, said Moscow had been forced to cut back, while RBC Capital Markets said the decision may reflect difficulty maintaining output from challenging fields.

“The big question for oil markets in coming months will be the extent that Russia’s oil and refined-product exports are upended,” said Vivek Dhar, director of mining and energy commodities research at Commonwealth Bank of Australia. “It’s worth noting that markets have generally overestimated the extent of Russian oil supply disruptions since the Ukraine war began.”

In the US, commercial stockpiles have expanded significantly in recent months, signaling ample crude supply in the world’s largest economy. On Tuesday, the American Petroleum Institute reported US inventories rose by 6.2 million barrels last week, according to people familiar with the figures. An official breakdown comes later on Wednesday.

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