Oil climbs 1% after U.S. crude inventories signal tighter supply

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Storage tanks are seen at the Petroineos Ineos oil refinery in Lavera, France, March 29, 2022. REUTERS/Benoit Tessier

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  • US crude inventories fell 3.5 million barrels last week – API
  • EU prepares new sanctions against Russia
  • Beijing tightens COVID restrictions

May 4 (Reuters) – Oil prices rose at the start of Asian trade on Wednesday after industry data showed drawdowns on U.S. crude and fuel inventories, raising supply concerns and offsetting concerns over slowing demand from the main Chinese importer.

Brent crude futures rose 89 cents, or 0.9%, to $105.86 a barrel at 0223 GMT. West Texas Intermediate crude futures rose 97 cents, or 1%, to $103.38 a barrel.

The gains come on the heels of news on Tuesday that the European Union is working on new sanctions against Russia for waging a war against Ukraine that will target Moscow’s oil industry. Read more

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European Commission President Ursula von der Leyen is expected to outline the plans on Wednesday, officials said.

In the United States, crude and fuel inventories fell last week, according to market sources citing figures from the American Petroleum Institute. Crude inventories fell 3.5 million barrels for the week ended April 29, the sources said, more than the drop of 800,000 barrels expected in a Reuters poll.

“The API report got people to stop worrying about the demand side and start worrying about the supply side again,” said Price Futures Group analyst Phil Flynn.

Data from the US government on stocks is due on Wednesday.

In the prior session, demand concerns stemming from prolonged COVID-19 lockdowns in China that curtailed travel plans over the Labor Day holiday period sent prices down more than 2%. Read more

The global manufacturing PMI contracted in April for the first time since June 2020, with lockdowns from China a key contributor, said Caroline Bain, chief commodities economist at Capital Economics in a note.

“The bigger picture is clearly negative for demand for commodities,” she said, adding that rising inflation and rising interest rates were starting to weigh on spending.

“While supply constraints may keep commodity prices high for some time to come, we believe subdued demand will weigh on most prices later this year and into 2023,” Bain said.

On Thursday, the Organization of the Petroleum Exporting Countries and their allies are expected to stick to their policy of another monthly increase in production, although the group, known as OPEC+, exceeded production targets between October and March, with the exception of February. Read more

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Reporting by Florence Tan in Singapore and Stephanie Kelly in New York; Editing by Sam Holmes

Our standards: The Thomson Reuters Trust Principles.

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