Oil surges more than 3% as Fed's Powell eases rate hike concerns

© Reuters. FILE PHOTO: Pump jacks operate at sunset in an oil field in Midland, Texas U.S. August 22, 2018. REUTERS/Nick Oxford/File Photo

By Stephanie Kelly

NEW YORK (Reuters) -Oil prices climbed more than 3% on Tuesday after the head of the U.S. central bank eased market concerns over interest rate hikes, while recovering demand in China also boosted prices.

Brent crude futures were up $2.70, or 3.3%, to $83.69 a barrel, while U.S. West Texas Intermediate crude futures rose $3.03, or 4.1%, to $77.14 per barrel.

U.S. Federal Reserve Chair Jerome Powell said on Tuesday that very strong jobs data released last week simply affirmed that the central bank has some way to go on raising rates.

While declining to say whether knowing about the vigor of the data would have affected last week's 25-basis-point rate rise, Powell told the Economic Club of Washington that the January jobs numbers show "why this will be a process that takes a significant period of time" when it comes to tightening monetary policy.

The U.S. dollar index fell after the data, raising oil prices. Interest rate hikes typically strengthen the dollar, which could make crude more expensive for non-U.S. buyers.

Forecasted stronger demand in China also lifted crude prices on Tuesday. The International Energy Agency expects half of this year's global oil demand growth to come from China, the agency's chief said on Sunday, adding that jet fuel demand was surging.

Saudi Arabia, the world's top oil exporter, raised prices for its flagship crude for Asian buyers for the first time in six months amid expectations of demand recovery, especially from China.

"That seemed to send home the message that the China reopening is real, and if Saudi Arabia is not afraid to raise prices on oil then that means demand is pretty good," said Phil Flynn, analyst at Price Futures Group.

In Turkey, operations at a 1-million-barrel-per-day (bpd) oil export terminal in Ceyhan were halted after a major earthquake hit the region. The BTC terminal, which exports Azeri crude oil to international markets, will be closed through Wednesday.

Iraqi crude oil loadings from storage in Ceyhan were ready for resumption on Tuesday, but bad weather was preventing vessels from berthing, a trade source said. Iraq's crude oil pipeline to Turkey's Ceyhan port was still halted, the Kurdistan Regional Government's energy ministry said.

The shutdown of the 535,000-bpd Phase 1 part of the Johan Sverdrup oilfield in Norway's area of the North Sea also boosted prices.

BP (LON:BP) on Tuesday reported a record profit of $28 billion for 2022 while boosting its dividend in a sign of confidence as it sharply raised spending plans but scaled back ambitions to reduce oil and gas output by 2030.

In the United States, U.S. crude production will rise in 2023 while demand will stay flat, the U.S. Energy Information Administration (EIA) said in its Short Term Energy Outlook (STEO) on Tuesday.