Oil futures prices climbed by 2% on Thursday. The consistent improvement in US factory activity compensated for the surprise build-up in crude and diesel inventories. On the other hand, some in the market worry that China’s new Hong Kong security law could cause trade sanctions.
Brent crude July futures climbed 55 cents, or 1.6%, to close at $35.29 a barrel. WTI crude oil increased by 90 cents, or 2.7%, to settle at $33.71.
Brent’s premium over West Texas Intermediate narrowed to its lowest since mid-April.
Due to a significant increase in imports from Saudi Arabia, US crude inventories exceeded expectations and increased by 7.9 barrels the previous week.
The report Energy Information Administration report, EIA, showed that refiners expanded output and gasoline stockpiles dropped unexpectedly.
Meanwhile, crude inventories at the US Cushing storage hub in Oklahoma declined by 3.4 million barrels.
Bob Yawger, the director of energy futures at Mizuho in New York, said that the market initially dropped due to the significant increase in crude stocks. However, it took a turn into positive territory when it saw the drawdown at the Cushing delivery point for West Texas Intermediate.
Crude oil prices gain value on anticipation of improved demand
In recent weeks, crude oil prices have rebounded. The coronavirus pandemic sapped the global consumption of oil by roughly 30%. However, now, the anticipation for demand has improved. Still, the balance has not recovered entirely. Investment is dropping, and US output cuts are balancing out the supply excess.
On the other hand, markets are worrying that Washington could enforce trade sanctions on China. Beijing imposed a new security law on Hong Kong. The US President, Donald Trump, said that they are not happy with what has happened. The Trump administration is likely to announce new policies on China today. Trump indicated that the US was working on a strong response to China’s proposed national security legislation for Hong Kong.
China’s parliament is expected to approve a recommended security law that would lessen Hong Kong’s independent legal status.
In addition, uncertainty about Russia’s commitment to maintaining deep crude oil production cuts kept the rally in check.
Saudi Arabia and other members of OPEC are considering an extension of record crude production cuts until the end of this year. Still, they have yet to get support from Russia, according to OPEC+ and Russian industry sources.
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