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Oil settles higher on demand optimism, gasoline strength

Commodities May 16, 2022 07:36PM ET
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© Reuters. FILE PHOTO: An aerial view shows an Idemitsu Kosan Co. oil facility in Ichihara, east of Tokyo, Japan November 12, 2021, in this photo taken by Kyodo. Mandatory credit Kyodo/via REUTERS

By Laura Sanicola

NEW YORK (Reuters) - Oil prices rose on Monday on optimism that China would see significant demand recovery after positive signs that the country's coronavirus pandemic was receding in the hardest-hit areas.

Brent crude futures for July delivery rose $2.69 to settle at $114.24 a barrel, a 2.4% gain, while U.S. West Texas Intermediate (WTI) crude rose $3.71, or 3.4%, to $114.20 a barrel.

Shanghai aims to reopen broadly and allow normal life to resume for the city's 25 million people from June 1, a city official said on Monday, after declaring that 15 of its 16 districts had eliminated cases outside quarantine areas.

However, it is estimated that 46 cities in China are under lockdowns, hitting shopping, factory output and energy usage.

"We are seeing a lot of signals that demand will start returning in that region, supporting higher prices," said Bob Yawger, director of energy futures at Mizuho.

In line with an unexpected sharp fall in industrial output in April, China processed 11% less crude oil, with daily throughput the lowest since March 2020.

U.S. gasoline futures set an all-time high again on Monday as falling stockpiles fuelled supply concerns.

Stockpiles in the Strategic Petroleum Reserve fell to 538 million barrels, the lowest since 1987, data from the U.S. Department of Energy showed on Monday.

"Record high gasoline pricing has shown no sign of spurring demand destruction with the U.S. economy appearing sufficiently strong to drive a robust kickoff to the heavy driving season in just a couple of weeks," said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.

Oil prices also found some support as the European Union's diplomats and officials expressed optimism about reaching a deal on a phased embargo of Russian oil despite concerns about supply in eastern Europe.

However, EU foreign ministers failed on Monday in their effort to pressure Hungary to lift its veto of the proposed oil embargo, with Lithuania saying the bloc was being "held hostage by one member state".

German Foreign Minister Annalena Baerbock said the bloc would need a few more days to find agreement.

"With a planned ban by the EU on Russian oil and slow increase in OPEC output, oil prices are expected to stay close to the current levels near $110 a barrel," said Naohiro Niimura, a partner at Market Risk Advisory.

Oil settles higher on demand optimism, gasoline strength
 

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Comments (2)
ytrytry ytry
ytrytry ytry May 16, 2022 2:21PM ET
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As we already know, going out of lockdown does not make you all the sudden use twice as much of resources. Just a deal for Putin.
ytrytry ytry
ytrytry ytry May 16, 2022 2:21PM ET
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Friday 100$ Monday 115$
trevor hron
trevor hron May 16, 2022 2:02PM ET
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The mixture of these things will definitely be bullish for oil. It has retreated in the past due to demand concerns but it sure looks like we are short on supply even with the situation in China. But having China humming a long again and EU Oil Embargo the price will have a ton of upside potential. With worldwide inventory falling to multiple year and even decade lows the pricw is going to have to go much higher to make capital spending more lucrative. Summer driving is here and the gasoline demand will prove it.
Kamil Abraham
Kamil Abraham May 16, 2022 2:02PM ET
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Comparing summer driving with China's oil demand, hah, very silly
 
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