Crude oil price recorded gains for the second session in a row even as it remains under pressure. As at the time of writing, Brent futures- the benchmark for global oil – was at $94.29; up by 1.9%. Even with the tight supplies, a strong US dollar and demand concerns continue to weigh on the commodity.
The US president announced the release of 15 million barrels from the Strategic Petroleum Reserve (SPR). The move is in an effort to lower fuel prices for Americans by countering the 2 million bpd production cut announced by OPEC+ about two weeks ago. Notably, OPEC+ announcement boosted crude oil price; bringing Brent futures closer to the psychologically crucial level of $100 per barrel.
Seeing that supply is usually a key driver of prices, Biden’s move should have yielded a decline in crude oil price. Interestingly, the commodity recorded gains for the second session in a row on Thursday.
The unexpected decline in US oil inventories, coupled with optimism over Chinese demand, are the major factors behind the recent gains. According to the data released by the Energy Information Administration (EIA), US crude oil stockpiles dropped by 1.725 million for the week that ended on 14th October. This comes after the previous week’s rise of 9.880 million.
Even with this bullish factor, crude oil price remains under pressure as has been the case in recent weeks. The announcement on OPEC+ output cut and the subsequent concerns over tight supplies was not enough to yield a rebound to the critical level of $100 per barrel. Indeed, Brent oil has been trading below the previously steady zone of $95 for over a week now.
Besides, concerns over crude oil demand from China persists. China is the second largest consumer and the leading importer of the commodity worldwide. As such, its consumption often impacts crude oil price.
Earlier in the week, President Xi Jinping highlighted that his administration will continue with its zero-COVID policy. The subsequent possibility of more coronavirus-related lockdowns has investors concerned over the status of oil demand in the country.
Furthermore, a strong US dollar remains at play in the oil market. As is the case with other dollar-priced assets, crude oil price tends to move inversely to the value of the greenback. For close to a month now, the dollar index has largely been above the resistance-turn-support zone of $110.