Oil prices rise, shrug off inventory gain, look for China stimulus
TOKYO (Reuters) – Oil prices rose on Thursday as investors banked on more economic stimulus by China after weak PMI data, partly recovering from losses in the previous session on a much larger than expected build in U.S. crude stocks.
Brent crude futures were up 39 cents, or 0.6%, at $61 a barrel by 0747 GMT. They dropped by 1.6% on Wednesday.
U.S. West Texas Intermediate (WTI) crude futures were up 30 cents, or 0.5%, at $55.36 after a 0.9% decline in the previous session.
Factory activity in China shrank for a sixth straight month in October while growth in China’s services sector activity was its slowest since February 2016, official data showed on Thursday.
“The move up in oil is driven by the expectation that more China stimulus is now on the way after the six-month low in the China manufacturing PMI,” said Jeffrey Halley, senior market analyst at OANDA.
“The knee-jerk response …. was to sell commodities and energy, but central banks globally have itchy trigger fingers at the moment with regards to easing, and I believe China will be no different,” he said.
The U.S. Federal Reserve cut interest rates for a third time this year on Wednesday, aiming to sustain an economic expansion that is the longest on record.
Rate cuts can often be bullish for oil prices because a stronger economy typically implies higher demand for crude.
Yet gains are likely to be capped until inventories start to show sustained declines.
Crude inventories rose by 5.7 million barrels in the week to Oct. 25, the U.S. Energy Information Administration said on Wednesday, compared with analyst expectations for an increase of 494,000 barrels.
The American Petroleum Institute had reported a decline of 708,000 barrels, raising hopes that official figures would also show a fall.
Crude stocks at the Cushing, Oklahoma, delivery hub for U.S. crude futures rose for a fourth straight week, gaining 1.6 million barrels last week, the EIA said.
However, gasoline and distillate inventories extended their declines even as refiners ramped up production, it said.
Graphic: U.S. petroleum inventories, here
Reporting by Aaron Sheldrick; Editing by Richard Pullin and David Goodman