Oil rises amid decline in US crude inventories and stimulus hopes in China

Oil prices experienced an upward surge on Thursday, driven by a combination of factors contributing to market optimism. Data revealing a substantial drop in US crude inventories, coupled with the Chinese central bank’s decision to reduce the reserve requirement ratio for banks, generated positive sentiment and heightened hopes for continued economic recovery.

In the early hours of trading, Brent crude for March delivery increased by 20 cents, or 0.3 percent, reaching $80.24 per barrel, while US West Texas Intermediate crude rose by 22 cents, or 0.3 percent, hitting $75.31 per barrel.

The US Energy Information Administration reported a significant decline of 9.2 million barrels in crude inventories in the United States last week, surpassing analysts’ expectations by more than four times. The consensus in a Reuters poll had predicted a decline of 2.2 million barrels, underscoring the unexpected nature of the inventory reduction.

Adding to the positive momentum, the Chinese Central Bank’s announcement of a substantial reduction in banks’ reserve requirements provided a boost to oil prices. This move injected approximately $140 billion into the banking system, signaling strong support for the struggling economy and addressing concerns in the declining stock markets.

China’s commitment to economic stability was further emphasized with its decision to expand banks’ use of commercial real estate lending, aimed at alleviating the liquidity crisis faced by troubled real estate companies.

Despite these positive developments, geopolitical tensions in the Middle East continue to be a focal point. Recent events, including explosions near the Bab al-Mandab Strait, led to two ships operated by a US unit of Maersk, carrying American military supplies, turning back. The incident was accompanied by the presence of elements from the American Navy.

In parallel, the US military announced that it conducted additional strikes in Yemen on Wednesday, underscoring the ongoing geopolitical complexities in the region.

As markets digest these multifaceted dynamics, investors remain vigilant, balancing positive economic indicators with geopolitical uncertainties that can influence oil prices in the near term. The confluence of factors underscores the intricate nature of the current global economic landscape and its impact on the energy markets.