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Oil Prices Set to Rise as Global Stock Refills Ramp Up

China's rebuilding of oil inventories and higher crude purchases elsewhere for fear of escalating shipping disruptions in the Red Sea are set to support global oil demand and benchmark prices in the near term, traders and analysts tell Reuters

Global oil stocks have been depleted to lower than historical averages since the Russian invasion of Ukraine shifted oil trade flows and sent oil prices above $100 per barrel in 2022. 

At the end of last year, with oil sliding from the 2023 highs of over $95 per barrel in September, China stepped up inventory building, taking advantage of the lower oil prices in the last quarter of 2023. 

In December alone, China is estimated to have sharply boosted the volume of crude going to storage for the highest rate of stockpiling in six months, according to calculations by Reuters columnist Clyde Russell

With oil prices in January down by around 20% from the 2023 high of $98 per barrel, Chinese refiners had more incentives to import larger volumes of crude at the start of this year, especially at prices around $75 a barrel. 

China's refiners were looking to stock up on below-$80 crude early in the year in anticipation of a surge in fuel demand in the second half, analysts and trading sources told Reuters last month. 

It's not only China that is rebuilding inventories this year-the U.S. and Europe are also exhibiting stronger demand than the season and prices suggest, as buyers, especially in Europe, are concerned about further deterioration of oil shipping in the Middle East. Increased appetite for crude originating closer to Europe is driving up the price of Nigerian and U.S. crude grades and is steepening the backwardation in Brent Crude futures. 

China is restocking in the first half so crude buying there is high, a trader for a refiner in Europe told Reuters. 

"U.S. and European buying is also stronger this month as the situation for barrels from East of Suez could get much worse at any time," the trader added.

By Tsvetana Paraskova for Oilprice.com

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Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.  More