Oil prices climb on Chinese stimulus hopes; US inventories in focus

Investing.com -- Oil prices climbed higher Wednesday, helped by a Chinese economic stimulus package as well as the continued Middle East tensions.

By 09:10 ET (14.10 GMT), the U.S. crude futures traded 0.8% higher at $74.94 a barrel and the Brent contract climbed 0.5% to $79.95 a barrel.

Chinese stimulus helps

The crude benchmarks have benefited Wednesday from People’s Bank of China governor Pan Gongsheng stating that China's central bank will cut the amount of cash that banks must hold as reserves from Feb. 5, the first such cut for the year.

The move is designed to free up 1 trillion yuan ($140 billion) to the market, as policymakers increase efforts to shore up the fragile recovery in the world’s second largest economy.

Weak data from China, the world’s largest oil importer, has been a major point of contention for crude markets, after the country clocked weaker-than-expected gross domestic product figures in the fourth quarter.

This added to raised tensions in the Middle East as support for the market, as the war between Israel and Hamas in Gaza rages on and Iran-backed Houthi militants continue to threaten shipping in the Red Sea, a crucial artery for shipping between Europe and Asia.

U.S. inventories point to slack demand

However, gains are limited by uncertainty over future demand, particularly in the U.S., the world’s largest economy.

Data from the American Petroleum Institute, released on Tuesday, showed that U.S. crude inventories shrank by 6.7 million barrels in the week to January 19, as severe cold weather across swathes of the country disrupted production.

The API data also showed a sustained increase in gasoline inventories, indicating that demand in the world’s largest fuel consumer remained weak as cold weather also disrupted travel in the country.

U.S. gasoline inventories have seen outsized builds for every week so far in 2024, indicating a severe decline in fuel demand as travel conditions deteriorated.

Official inventory data from the Energy Information Administration are due later in the session.

Key economic readings awaited

Recent strength of the dollar has also weighed on the crude market, amid growing expectations of higher-for-longer U.S. interest rates as the U.S. economy shows signs of resilience.

U.S. business activity numbers for January are due later in the session, after the equivalent data in Europe showed the downturn in eurozone business activity eased in January, but an improvement in the manufacturing outlook was partly offset by a steeper decline in the bloc's dominant services industry.

Eyes are also on fourth-quarter GDP data on Thursday, which is expected to show some cooling in growth, and Friday’s PCE price index data, the Fed’s preferred inflation gauge.

(Ambar Warrick contributed to this article.)

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This article first appeared in Investing.com