Oil prices rose above $114 a barrel early on Tuesday, reaching the highest level in eight weeks, amid a tight global fuel market and expectations that Chinese demand will start recovering soon.
As of 8:46 a.m. EST on Tuesday, both benchmarks were trading above $114 per barrel—the highest price since the last week of March. WTI Crude was down 0.10% at $114.47, and Brent Crude traded up 0.11% at $114.78.
After weeks of concerns over weakening Chinese demand amid the tightest COVID-related restrictions in the country since the onset of the pandemic, the oil market is now looking with cautious optimism to comments from Chinese authorities that Shanghai may return to more or less normal life as of June 1. A reopening could incentivize oil demand in the world’s top crude importer after weeks of depressed fuel consumption weighing on global oil prices.
Chinese refiners slashed crude processing by 11 percent annually in April due to weak demand. Yet, analysts and traders expect April to have been the bottom of the crude runs and fuel demand, and forecast a rebound in refinery run rates in May and fuel consumption in June.
Tight product markets in the United States and Europe have also supported oil prices this week. The U.S. national average price of gasoline exceeded $4.50 on Tuesday—it was at $4.523 per gallon on May 17, the highest on record, according to AAA data. Diesel prices also hit a new record today, at $5.573 a gallon.
Oil prices “returned to an eight-week high overnight after China signaled it would start unwinding lockdowns in the Shanghai area. Also underpinning prices is the continued strength in fuel products driven by strong demand and restrained refining capacity,” Saxo Bank said in a daily commentary on Tuesday.
“Global demand has yet to show signs of meaningful demand destruction and with Chinese demand starting to recover the risk of higher prices remains, not least considering Europe’s continued efforts to reduce its dependency on Russian oil and gas,” the bank’s strategy team noted.
By Tsvetana Paraskova for Oilprice.com
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