Oil prices rose 2% on Wednesday as optimism on oil demand and US debt ceiling negotiations outweighed supply concerns.

Brent crude futures rose $1.48, or 2%, to $76.39 a barrel by 11:56 a.m. EDT (1656 GMT). West Texas Intermediate US crude was up $1.50 cents or 2.1% to $72.36.

The International Energy Agency on Tuesday predicted demand would outpace supply by 2 million barrels per day (bpd) in the second half of the year, with China making up 60% of oil demand growth in 2023.

Oil dips on weaker China, US economic data

“The IEA’s assessment has added optimism to the market this morning,” said Bob Yawger, director of energy futures at Mizuho. He added that crude prices were also bolstered by optimism on debt ceiling talks.

Debt ceiling negotiations have preoccupied market participants, who took heart from Republican House of Representatives Speaker Kevin McCarthy’s vow to avoid what would be a catastrophic default on Wednesday.

The optimism outweighed a crude inventory increase of 5 million barrels in the week ended May 12, the Energy Information Administration said on Wednesday.

Analysts expected a 900,000 barrel drop in a Reuters poll.

The crude inventory build added to concerns about US growth after data showed retail sales rose 0.4% in April, short of estimates for an increase of 0.8%.

However, gasoline stocks drew down by 1.4 million barrels as the four-week gasoline product supplied - a proxy for demand - rose to its highest level since December 2021.

In China, April industrial output and retail sales growth undershot forecasts, suggesting the economy lost momentum at the beginning of the second quarter.

“Markets were in a wait-and-watch mode over the outcome of crucial negotiations to raise the US government’s debt ceiling,” said Vandana Hari, founder of oil market analysis provider Vanda Insights.

“A bunch of Chinese macro-economic data for April released on Tuesday confirmed the narrative of a patchy and slow recovery in the country and continue to weigh on oil market sentiment.”