Hints of recovery in demand lifts oil

The price of Brent crude oil climbed back above the $60 per barrel level on Wednesday and touched a high above $62 on Thursday, after comments from Saudi Arabia yesterday hinted that a recovery in appetite for crude is coming.

On Wednesday the oil minister of Saudi Arabia, Ali al-Naimi, boosted the oil market by saying: “Markets are calm now ... demand is growing.”

The comments come on the back of several research notes this week that also suggest crude demand is recovering, which is helping to support the price of oil. The research consultancy, Energy Aspects, estimated that demand for crude in December grew at its quickest pace in 18 months, a trend which the consultancy expects to continue throughout the year.

Furthermore, the cheaper prices appear to be swelling demand for gasoline across the world, according to the research group, JBC Energy. In the US, gasoline demand grew almost 500,000 barrels a day in January, while over in India, demand increased around 18 per cent in the year to January.

The comments and the research combined to see crude prices post their largest percentage gains in almost two weeks on Wednesday, which were also lifted by a slightly stronger-than-expected manufacturing survey from the world’s biggest consumer of oil, China.

The Chinese economy has shown signs of slowing recently, which has added to slackening demand for crude. Any signs of recovery will surely increase the nation’s appetite for the black gold.

Global oversupply has been adding pressure on the price of crude oil since June 2014, which saw oil touch lows around $45 per barrel in January, a slump that slashed prices by more than 60 per cent. However, since then, oil has recovered around 35 per cent from that six-year low and stabilised around the $60 mark.

US crude inventories continue to record increases and are adding to the oversupply pressure, which markets are ignoring for the moment. If demand does increase then the growing stockpiles may not drag prices lower, however, any indications that appetite for crude begins to wane would weigh heavily on the price of oil.