Oil continue gains on Russia-Europe tension as hopes for Chinese support
Oil prices rose further in early Asian trade on Wednesday as geopolitical tensions remained high, with Russia warning of gas supply cuts to Poland and Bulgaria, while hopes of Chinese economic stimulus boosted the outlook for oil demand. Brent crude futures were up $1.27, or 1.2 percent, to $106.26 per barrel as of 0143 GMT. West Texas Intermediate crude futures in the United States rose $1.11, or 1.1 percent, to $102.81 per barrel.
In volatile trade, crude prices settled about 3% higher on Tuesday, as the market is torn between supply and demand concerns over Russian oil and gas disruptions, as well as a worsening global economic outlook. Russia’s Gazprom has informed Poland and Bulgaria that gas supplies will be cut off as of Wednesday, in a major escalation of Russia’s broader dispute with the West over its invasion of Ukraine, which Moscow refers to as a “military operation.” The news sent NYMEX ultra-low sulphur diesel futures up more than 9% on Tuesday, to a record close of $4.47 per gallon. “Oil is supported by the escalation of geopolitical tensions,” SPI Asset Management’s Stephen Innes wrote in a note.
“Cutting gas flows are not new news, but the timing of Russia plugging the gas flows at a time when stagflationary fears are running high again is.”The International Monetary Fund (IMF) warned on Tuesday that Asia faces a “stagflationary” outlook, citing the Ukraine conflict, a spike in commodity prices, and a slowdown in China as major uncertainties. China’s central bank announced on Tuesday that it will increase prudent monetary policy support for the country’s economy as Beijing rushes to contain a nascent COVID-19 outbreak in the capital and avoid the same crippling city-wide lockdown that has engulfed Shanghai for a month. Any stimulus would increase demand for oil.
Despite extended lockdowns in Asia’s largest aviation market, domestic flight demand in China has rebounded, pushing global airline capacity to its highest level in 2022 this week, according to travel data firm OAG. In terms of supply, the United States government will release data on crude inventories later on Wednesday. According to industry data released on Tuesday, crude and distillate stocks in the United States increased last week while gasoline inventories fell.