Oil prices rebounded on Tuesday, settling nearly 1% higher after hitting a two-week low earlier in the trading session. The market sentiment shifted towards expectations of tighter supply, outweighing concerns about an uncertain economic outlook that could potentially impact demand.
Brent crude futures settled 67 cents higher, representing a 0.7% increase, closing at $93.96 per barrel. Meanwhile, U.S. West Texas Intermediate crude futures settled 71 cents higher, up by 0.8%, at $90.39 per barrel.
Russia recently eased its export restrictions on gasoline and diesel, allowing exports of products already accepted by Russian Railways and Transneft. However, the ban on exporting high-quality diesel and gasoline remains in place. Despite these developments, oil supply remains tight, as Russia and Saudi Arabia have extended their production cuts until the end of the year.
Analyst Tamas Varga from oil broker PVM emphasized that oil supply is expected to fall short of demand in the foreseeable future. Therefore, any weaknesses in oil prices, even if surprising, are unlikely to last.
Central banks like the U.S. Federal Reserve and the European Central Bank have reiterated their commitment to combat inflation, suggesting that tight monetary policies may persist longer than previously anticipated. This could potentially slow economic growth and reduce oil demand.
Andy Lipow, President of Lipow Oil Associates LLC, noted that refined products are under pressure due to concerns about higher oil prices and interest rates remaining elevated, potentially dampening demand.
However, the U.S. dollar reached a 10-month high on Tuesday, attracting investors due to higher bond yields. A stronger dollar can weigh on oil demand because it becomes more expensive for importers when their local currency weakens against the dollar.
Moody’s issued a warning about the potential harm to the U.S. credit rating if there were a government shutdown, adding further uncertainty to the market. The oil industry faces challenges in reaching the coveted $100 per barrel target amid these factors.
After the settlement, industry data revealed that U.S. crude oil stockpiles had risen by approximately 1.6 million barrels in the previous week, contrary to analysts’ expectations of a 300,000 barrel drop. The U.S. government’s official data on crude stockpiles is scheduled for release on Wednesday.
Investor concerns about tightening supplies in the Cushing, Oklahoma storage hub also contributed to price gains. Crude stockpiles at Cushing are at their lowest levels in 14 months due to strong refining and export demand, raising concerns about the quality of remaining oil and the risk of falling below minimum operating levels.