Oil paced up on Wednesday as strong Chinese factory activity renewed investor inflows into industrial commodities such as copper, although fast-growing U.S. crude output tempered price gains.
China reported a 7.2 percent year-on-year increase in industrial output in the first two months of the year, beating roundly expectations and, in a dose of support for oil bulls, the data showed crude production fell 1.9 percent.
Copper and palladium, a key component in gasoline-powered vehicles, both rose around one percent, which in turn encouraged a bounce in oil price.
Brent crude was last up 27 cents at $64.92 a barrel, off an earlier low of $64.43, while U.S. West Texas Intermediate (WTI) futures were up 31 cents at $61.02 a barrel.
“We’ve seen copper breach above $7,000 (a tonne) … and I think a lot of this is coming out of this really big beat in the Chinese industrial production, so general macro flows, I would say, are reinforcing that bullish narrative,” ING commodities strategist, Oliver Nugent, said.
China is the world’s largest importer of commodities and is the world’s biggest car market.
Chinese oil production fell 1.9 percent in January and February to a daily rate of around 3.77 million barrels per day, while the amount of crude processed by refineries rose 7.3 percent to 93.4 million bpd, implying that its import demand will remain strong.
Brent crude has fallen by around one percent so far this week, as traders and investors have grown increasingly doubtful that coordinated supply cuts by OPEC and some of its partners might not be enough to offset the relentless rise in U.S. crude production.
U.S. oil production is expected to top 11 million bpd later this year.
Rising output, as well as seasonally low demand, mean that U.S. crude inventories rose by 1.2 million barrels in the week to March 9, to 428 million barrels, the American Petroleum Institute said on Tuesday.
Seasonal demand patterns for crude and refined products mean the market may only be weeks away from a run of declines.
“The total U.S. crude, gasoline and distillate stocks have increased in eight of the past 10 weeks, raising 24 million bl in total since the start of the year. So if inventories declined last week it will definitely be a positive turn,” SEB commodities strategist Bjarne Schieldrop said.
“We are now only 2-4 weeks away from when weekly oil inventory data will start to draw again which should be supportive for oil prices,” Schieldrop added.
Weekly U.S. crude production figures will be published by the Energy Information Administration (EIA) later on Wednesday.