Oil prices rise on China demand recovery expectations, supply concerns

© Reuters. FILE PHOTO: An aerial view shows an oil factory of Idemitsu Kosan Co. in Ichihara, east of Tokyo, Japan November 12, 2021, in this photo taken by Kyodo. Mandatory credit Kyodo/via REUTERS

By Rowena Edwards

LONDON (Reuters) - Oil prices rose on Wednesday on expectations that easing COVID-19 restrictions in China will boost demand and as supply concerns grew.

Brent crude was up $1.24 cents, or 1.1%, at $113.17 a barrel at 0921 GMT, while U.S. West Texas Intermediate (WTI) crude climbed $1.69 cents, or 1.5%, to $114.09 a barrel, reversing some of the previous session's losses.

Hopes of further lockdown easing in China boosted expectations for demand recovery. The country's authorities allowed 864 of Shanghai's financial institutions to resume work, sources said on Wednesday, a day after the Chinese city achieved a milestone of three consecutive days with no new COVID-19 cases outside quarantine zones.

The market also saw support from rising supply concerns. Russian crude output in April fell by nearly 9% from the previous month, an internal OPEC+ report showed on Tuesday, as Western sanctions on Moscow following its invasion of Ukraine hit the top oil producer.

The price rise is being capped by reports that the U.S. is planning to relax sanctions against Venezuela and allow Chevron Corp (NYSE:CVX) to negotiate oil licences with Venezuela's national producer.

"Though this will bring little relief to the market in the short term, it would nonetheless be a first step towards ensuring that more oil could reach the market in future from currently sanctioned countries," Commerzbank (ETR:CBKG) analyst Barbara Lambrecht said.

The European Union's failure to persuade Hungary to lift its veto on a proposed embargo on Russian oil is adding price pressure, although some diplomats expect agreement on a phased ban at a summit at the end of May.

And the European Commission will on Wednesday unveil a 210 billion euro plan for how Europe can end its reliance on Russian fossil fuels by 2027.

"In the meantime, the oil market will likely take its cues from today’s EIA update concerning US oil stocks," PVM analyst Stephen Brennock said.

U.S. crude and gasoline stocks fell last week, according to market sources citing American Petroleum Institute figures on Tuesday.

For the economic outlook, U.S. Federal Reserve Chairman Jerome Powell on Tuesday said the central bank would ratchet up interest rates as high as needed to stifle inflation that he said threatened the foundation of the economy.