Oil Surges $1 on Declining US Crude Stocks and Optimism Over China Stimulus

On Thursday, oil prices increased as U.S. crude stockpiles declined more than anticipated, and the Chinese central bank’s decision to reduce banks‘ reserve ratio fueled expectations of additional stimulus measures and economic rebound.

Brent crude futures rose by 1.2% to $81.01 a barrel, and U.S. West Texas Intermediate crude increased by 1.4% to $76.12 a barrel at 0955 GMT.

“A significant drop in the U.S. oil inventories and expectations of China’s economic recovery and more stimulus measures supported oil prices,” said Toshitaka Tazawa, an analyst at Fujitomi Securities.

“Tensions in the Middle East were also behind buying,” he added.

U.S. crude stockpiles unexpectedly plunged by 9.2 million barrels last week, surpassing the anticipated draw of 2.2 million barrels, according to the Energy Information Administration.

Severe winter weather led to a significant decline in U.S. crude imports, contributing to the unexpected draw in crude stockpiles as refineries were impacted and reduced motorist activity.

U.S. crude output experienced a notable decline from a recent high of 13.3 million barrels per day (bpd) to a five-month low of 12.3 bpd due to freezing conditions impacting oil wells.

Oil prices received additional support from optimistic expectations surrounding China’s economic recovery.

China’s central bank made a substantial cut in bank reserves, injecting approximately $140 billion into the banking system, signaling robust support for a vulnerable economy and declining stock markets.

Geopolitical tensions in the Middle East stay in focus, but price gains are limited as risk premiums are already factored in, according to Priyanka Sachdeva, senior market analyst at Phillip Nova.

“There is no actual damage done to crude oil supplies … it’s mere anticipation that the Red Sea contagion will lead to further disruption in oil flow from the producing region,” Sachdeva said.

Maersk reported that explosions in the vicinity compelled two ships operated by its U.S. subsidiary, carrying U.S. military supplies, to turn around while transiting the Bab al-Mandab Strait off Yemen.

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