Oil prices up as strong Chinese demand helps tackle glut

Oil prices rose on news that Chinese demand for crude during the first six months of the year is up by 13.8 per cent. PDC Energy photo.

Oil prices up 1.5 per cent

Oil prices rose about 1.5 per cent on Thursday after data showed demand for crude in China is up over 13 per cent this year compared to 2016.

Brent crude was up 70 cents to $48.44/barrel by 11:27 a.m. EDT and US light crude was 70 cents higher at $46.19/barrel.

“The market is trying to stabilize,” Gene McGillian, manager of market research at Tradition Energy told Reuters.

On Wednesday, the US Energy Information Administration released data showing the largest decline in US crude stocks in 10 months, however, prices were only minimally impacted.

“The market is having difficulty picking its head up,” McGillian said.

According to Reuters, there is evidence global demand for oil is increasing, most notably in the US and China, the world’s two largest consumers of crude.

During the first half of the year, Chinese oil imports amounted to 8.55 million barrels per day (b/d), up 13.8 per cent over the same period in 2016.

The Chinese are now the biggest importer of crude, ahead of the US.

Neil Beveridge, senior oil analyst at Sanford C Bernstein said “We are definitely seeing robust demand growth (in China).”

This increasing demand is helping to tackle the global crude glut, but the market is taking longer to rebalance than expected. Rising US production and limited output cuts by some OPEC members have kneecapped the cartel’s efforts to reduce the stubborn supply overhang.

On Wednesday, the International Energy Agency released a downbeat report showing output by key OPEC producers had risen last month.

“Each month something seems to come along to raise doubts about the pace of the rebalancing process,” the IEA report said.

“This month, there are two hitches: a dramatic recovery in oil production from Libya and Nigeria and a lower rate of compliance by OPEC with its own output agreement.”