By Peter Nurse
Investing.com -- Oil prices traded higher Tuesday, climbing to the highest levels in seven weeks, on hopes that China’s COVID lockdowns could soon be lifted, boosting demand from the largest importer of crude in the world.
By 8:45 AM ET (1245 GMT), U.S. crude futures traded 0.3% higher at $112.10 a barrel, while the Brent contract rose 0.3% to $114.62 a barrel, after climbing as high as $115.68 a barrel, its highest level since March 28.
U.S. Gasoline RBOB Futures were up 0.3% at $4.0345 a gallon.
Shanghai achieved its long-awaited milestone of three consecutive days with no new COVID-19 cases outside quarantine zones on Tuesday, a period that usually means "zero COVID" status and the beginning of the lifting of restrictions.
The financial hub set out plans on Monday for the end of a lockdown that has lasted more than six weeks, with a return of more normal life from the beginning of June.
This period of lockdown has had a significant impact on the growth of the second-largest economy in the world, with China processing 11% less crude in April than a year earlier, and optimism is rising that demand can soon pick up.
That said, gains are limited Tuesday after EU foreign ministers failed on Monday in their effort to pressure Hungary to lift its veto on the proposed oil embargo of Russian crude.
According to figures from the International Energy Agency, Hungary imported 70,000 barrels per day, or 58%, of its total oil imports in 2021 from Russia, illustrating its degree of dependence on Moscow for its energy needs.
“The removal of this particular fear factor in the oil price will allow oil prices to move back over the course of this year to the level they were before the Russia-Ukraine ‘war premium’ began to be priced in by the smart money in September 2021, which was around US$65 per barrel of Brent,” according to research from OilPrice.com, in a note.
Attention now turns to the weekly U.S. crude oil supply data from the American Petroleum Institute, due later in the session.
Inventories in the Strategic Petroleum Reserve fell to 538 million barrels, the lowest since 1987, according to Monday’s data from the U.S. Department of Energy, with the Biden administration using the SPR to try and increase global supply and curb price rises.
“The continuous inventory withdrawal over the past few weeks has pushed U.S. gasoline stocks to levels significantly below the five-yr average at this point in the season and reflects acute supply tightness,” said analysts at ING, in a note.
That said, the latest data from Baker Hughes showed that the U.S. oil rig counts increased by 6 to 563 rigs over the last week, the eighth consecutive week of rig additions.