Oil rose above US$104 with traders seeing a global supply deficit even as the International Energy Agency lowered its global demand growth estimates because of China’s renewed lockdowns. 

West Texas Intermediate rose 3.6 per cent on Wednesday, extending its recent rally above US$100 a barrel. The IEA said that OPEC+ members have only managed to provide 10 per cent of their promised supply increases for March. In the same report, the agency cut its forecast for the world’s crude needs this year after Beijing reimposed lockdowns to contain the spread of COVID-19. 

China’s cabinet said it would cut banks’ reserve requirement ratio in a further sign that the country’s central bank is likely to add monetary stimulus to boost the economy, according to state-run TV. That should support demand in the world’s biggest oil importer once lockdowns are eased.

“There is a supply and demand imbalance,” in markets right now and that’s “going to be supportive of prices,” said Quinn Kiley, a portfolio manager at Tortoise, a firm that manages roughly US$8 billion in energy-related assets. 

Oil has experienced extreme volatility and fluctuations in the past few months as markets track developments in the Russia-Ukraine war. Even before the war, the oil market was robust as the recovery in demand from COVID-19 helped to drain inventories, leading prices to skyrocket. With higher energy prices fanning inflation, governments recently announced plans to tap strategic oil stockpiles in an attempt to quell rising prices. 

 “The market does look more balanced, but we have to remember that oil demand continues to grow this year,” given the recovery from COVID-19, Toril Bosoni, head of the IEA’s oil market division said in a Bloomberg TV interview. “With all the uncertainty on both the demand and the supply side, the SPR releases go some way to create comfort for the market.” 

Prices

• WTI for May rose US$3.65 to settle at US$104.25 a barrel in New York.
• Brent for June settlement rose US$4.14 to US$108.78 a barrel

Oil temporarily pared some of its gains as U.S. crude stockpiles rose 9.38 million barrels, the largest build in over a year, though much of that increase was attributed to moving inventories from the Strategic Petroleum Reserve to the commercial inventories. That build was also offset by declines in both gasoline and distillates.  

Related coverage:

• With U.S. gasoline prices averaging more than US$4 a gallon, consumers are cutting back, and that’s affecting the trans-Atlantic fuel trade.
• Some oil traders are tapping the options market to ease the financial pressure caused by soaring margins and volatile crude prices.
• Forecasters are divided over the impact that Russia’s attack on Ukraine will have on oil markets. They all see weaker demand growth than they did before the war started in February, while their supply outlooks have diverged dramatically.