Oil prices experienced a surge in Asian trading on Wednesday, extending a rebound from the previous session. This occurred as the possibility of tighter oil supplies helped alleviate concerns over rising interest rates and their potential impact on the economy.
Industry data revealed a decline in U.S. fuel and distillate inventories, signaling that fuel consumption in the world’s largest economy remained stable despite the conclusion of the travel-heavy summer season. This data followed Russia’s fuel export ban, expected to tighten fuel supplies across Europe and Asia. Additionally, ongoing crude production cuts by Saudi Arabia and Russia, set to continue until year-end, suggested significantly tighter oil supplies in the months ahead.
The prospect of reduced oil supplies provided support to oil prices, even as concerns grew regarding future demand amid indications of higher interest rates from the Federal Reserve.
However, the strength of the U.S. dollar, which reached a 10-month high this week, limited substantial gains in oil prices.
Brent oil futures saw a 0.9% increase to $93.24 a barrel, while West Texas Intermediate crude futures surged 1.1% to $91.33 a barrel by 00:06 ET (04:06 GMT).
API Data Shows Decreasing Gasoline and Distillate Inventories
Data from the American Petroleum Institute (API) indicated that U.S. crude stockpiles expanded by nearly 1.6 million barrels (mb) in the week ending September 22, showing a slight increase after a 5.3 mb decline in the prior week. Gasoline and distillate inventories, however, decreased by 0.07 mb and 1.7 mb, respectively, suggesting stable fuel demand in the United States.
The API data serves as a precursor to official inventory data, scheduled for release later on Wednesday, but it still portrayed a tight picture of U.S. crude markets. Analysts anticipate that the official data will reveal a 1.7 mb reduction in inventories following a 2.1 mb draw in the previous week.
Stronger Dollar and Fed Rate Hike Concerns Limit Larger Rebound
Despite oil prices trading near their highest levels of the year, there are questions about how much further they can climb. This is due to the pressure from a stronger dollar and growing concerns about more rate hikes from the Federal Reserve.
Oil prices rallied over 30% in the last two months due to supply cuts from Russia and Saudi Arabia. However, they have recently shown signs of stalling, fluctuating between $89 and $95 per barrel.
Market apprehensions regarding rising interest rates, which could dampen economic activity and subsequently curb crude demand, have been a key factor supporting the dollar.
Additionally, concerns about China have contributed to keeping oil prices relatively subdued, as headwinds affect the country’s crucial property sector. This week also brings the release of China’s business activity data, adding to market uncertainties.