Oil rose yesterday as the prospect of higher Chinese demand and heightened geopolitical risks outweighed recession fears after a flurry of central bank interest rate hikes, including from the Bank of England.
Brent crude futures were up 70 cents, or 0.78 per cent, to $90.53 per barrel, while U.S. West Texas Intermediate (WTI) crude was up 71 cents, or 86 per cent, at $83.65.
Prices rose by more than $1 earlier in the session on news that crude oil demand in China, the world’s largest oil importer, is rebounding, having been dampened by strict COVID-19 restrictions.
At least three Chinese state oil refineries and a privately run mega refiner are considering increasing runs by up to 10 per cent in October from September, eyeing stronger demand and a possible surge in fourth-quarter fuel exports, people with knowledge of the matter said.
Meanwhile, Russia pushed ahead on Thursday with its biggest conscription since World War Two, raising concerns an escalation of the war in Ukraine could further hurt supply.
“Russian President Vladimir Putin’s frequent irrational actions and reactions are what will keep the market volatile and violent on occasions,” said TamasVarga, oil analyst at London brokerage PVM Oil Associates.
Keeping a cap on prices, the Bank of England raised its key interest rate by 50 basis points to 2.25 per cent and said it would continue to “respond forcefully, as necessary” to inflation, despite the economy entering a recession.
Following the Federal Reserve’s hefty 75 bps rise on Wednesday, rate increases also came thick and fast from the Swiss National Bank, Norges bank and Indonesia’s central bank, with a further hike expected from the South African Reserve bank later in the day.
“This just shows how synchronised this current tightening cycle is,” Deutsche Bank said.
The Fed also signalled on Wednesday that U.S. borrowing costs would keep rising this year, in a move that sent Brent and WTI to a near two-week low.
Further pressure followed stock builds. U.S. crude inventories (USOILC=ECI) rose by 1.1 million barrels in the week to September 16 to 430.8 million barrels, smaller than analysts’ expectations in a Reuters poll for a 2.2 million-barrel rise.