Oil prices climb on hopes of China demand recovery

© Reuters. FILE PHOTO: An aerial view shows an oil factory of Idemitsu Kosan Co. in Ichihara, east of Tokyo, Japan November 12, 2021, in this photo taken by Kyodo. Mandatory credit Kyodo/via REUTERS

By Isabel Kua

SINGAPORE (Reuters) - Oil prices rose more than $1 a barrel in early Asian trade on Wednesday on hopes of demand recovery in China as the country gradually eases some of its strict COVID-19 containment measures.

Brent crude futures were up $1.15, or 1.0%, at $113.08 a barrel at 0042 GMT, while U.S. West Texas Intermediate (WTI) crude futures climbed $1.62, or 1.4%, to $114.02 a barrel, paring some losses after oil prices fell by around 2% in the previous session.

Shanghai achieved its long-awaited milestone of three consecutive days with no new COVID-19 cases outside quarantine zones on Tuesday and set out plans on Monday for ending a lockdown that has lasted more than six weeks.

"Beyond the near term, less awful news on China offers a nip in the tail in the form of much higher oil demand and prices, which is positive for producers, but harmful for consumer sentiment," SPI Asset Management managing director Stephen Innes said in a client note.

U.S. crude and gasoline stocks fell last week, market sources said citing American Petroleum Institute figures on Tuesday. U.S. government data is due on Wednesday. [API/S][EIA/S]

Russia's production fell by nearly 9% in April, and the country, part of the OPEC+ group of oil-producing nations, produced oil far below levels required under a deal to ease record output cuts made during the worst of the coronavirus pandemic in 2020.

However, there is still pressure on prices following reports that the United States is allowing Chevron Corp (NYSE:CVX) to negotiate oil licences with Venezuela's national producer, temporarily lifting a U.S. ban on such discussions, analysts from ANZ Research said in a client note on Wednesday.

"The proposed changes could ultimately lead to more crude oil hitting the market."

Further weighing on the market was the European Union's failure on Monday to persuade Hungary to lift its veto on a proposed embargo of Russian oil. But some diplomats now point to a May 30-31 summit as the moment for agreement on a phased ban.

In the United States, Federal Reserve Chairman Jerome Powell on Tuesday pledged that the central bank would ratchet up interest rates as high as needed to stifle a surge in inflation that he said threatened the foundation of the economy.