Oil prices rise despite US inventory hike as China eases Covid lockdowns

Oil prices have risen backing on Chinese expectations as it unlocks cities. Even though US inventory hikes, oil prices rose parallely, possibly due to a strike by Norwegian workers.

By Ahmad Ghaddar

LONDON (Reuters) -Oil prices rose on Wednesday, despite a likely rise in U.S. oil stocks, on the easing of Chinese COVID-19 related lockdowns and a possible strike by Norwegian oil workers.

Brent crude futures were up $1.01, or 0.8%, at $121.58 a barrel at 0927 GMT. U.S. West Texas Intermediate crude was at $120.62 a barrel, up $1.21, or 1%.

"Despite the API report showing builds for crude and oil products, oil prices are higher, supported by expectation of China easing the COVID restrictions, translating in higher demand and imports this summer," UBS analyst Giovanni Staunovo said.

A number of Norwegian oil workers plan to strike from June 12 over pay, putting some crude output at risk of shutdown.

Market sources said American Petroleum Institute figures on Tuesday showed U.S. crude stocks rose by 1.8 million barrels for the week ended June 3. Gasoline and distillate inventories rose by 1.8 million barrels and 3.4 million barrels, respectively.

The U.S. Energy Information Administration (EIA) will report last week's stock levels at 1030 a.m. EDT (1430 GMT) on Wednesday.

The World Bank on Tuesday slashed its global growth forecast for 2022 by nearly a third, warning Russia's invasion of Ukraine had compounded damage from the COVID-19 pandemic, and that many countries now faced recession.

Meanwhile, global crude and oil product supplies remain tight, boosting Asian refiners' diesel margins to record levels, as Western sanctions hamper exports from major producer Russia.

The CEO of global commodities trader Trafigura said oil prices could soon hit $150 a barrel and go higher this year, with demand destruction likely by the end of the year.

Most refineries globally are already running close to capacity to meet rising demand from the pandemic recovery and to replace lost Russian supplies.

JP Morgan analysts estimate Russia has cut about 500,000 to 700,000 barrels per day of oil product exports, because it now finds marketing fuel harder than marketing crude.

"Unless new Middle East capacity comes online more quickly than we expect or China decides to lift its products export caps, the shortage of clean products will only get worse as demand for transport fuels picks up during the northern hemisphere summer," they said in a note.

On Tuesday, China topped up its first batch of product export quotas aimed at reducing high domestic inventories, which have risen as pandemic lockdowns have dented demand. Despite the latest additions to the quotas, their volumes remain much lower than last year, however.

(Additional reporting by Florence Tan and Muyu Xu in SingaporeEditing by Mark Potter)