Oil prices climbed by more than $1 a barrel on Wednesday as markets shifted their focus to supply tightness heading into the winter season and the anticipation of a “soft landing” for the U.S. economy.
Brent crude futures gained 74 cents, or 0.8%, reaching $94.70 a barrel by 0645 GMT, after peaking at $1.03. U.S. West Texas Intermediate crude futures also rose, climbing 83 cents, or 0.9%, to $91.22, with a peak increase of $1.11.
On Tuesday, industry data revealed that U.S. crude oil stockpiles had increased by about 1.6 million barrels, contrary to analysts’ expectations of a drop by approximately 300,000 barrels. Nevertheless, concerns persisted about U.S. crude stockpiles at the crucial Cushing, Oklahoma storage hub falling below minimum operating levels.
Further declines in Cushing’s inventory, the delivery point for U.S. crude futures, could exert additional upward pressure on oil markets, compounding supply tightness resulting from production cuts by the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+.
CMC Markets analyst Leon Li commented, “Oil prices are overall relatively strong amid the current tightening of supply.” However, he cautioned that the support for prices from supply cuts by Russia and Saudi Arabia may have limitations through the end of the year.
He also mentioned, “(Economic) data from countries in Europe and the United States have recently weakened … Oil prices in October may show a volatile trend as a whole. It is unlikely to exceed $100 in the short term, but it is expected to be strong.”
U.S. government data on oil inventories was anticipated at 10:30 a.m. (1430 GMT).
While some analysts expected that seasonal autumn maintenance at refineries could help increase crude stocks slightly, others expressed concerns that high export demand might divert barrels away.
Moreover, analysts at ANZ Research highlighted in a Wednesday note that Russia’s recent export ban on gasoline and diesel “means upward pressure on crude oil demand from refineries.
Russia had implemented a temporary ban on gasoline and diesel exports to all countries outside a circle of four ex-Soviet states to stabilize the domestic market but later relaxed the restrictions.
Meanwhile, Neel Kashkari, President of the Minneapolis Federal Reserve Bank, stated on Tuesday that a “soft landing” for the U.S. economy is more likely than not. However, he also noted a 40% chance that the Fed would need to raise interest rates “meaningfully” to combat inflation.
Kashkari estimated a 60% probability that the Fed would “potentially” raise rates by another quarter of a percentage point and then maintain borrowing costs steady “long enough to bring inflation back to target in a reasonable period of time.”
A Reuters poll of economists indicated that the Bank of England had completed its tightening cycle and would likely keep the Bank Rate at 5.25% until at least July, although a significant minority anticipated another rate hike this year.
Higher interest rates result in increased borrowing costs, which could potentially slow economic growth and reduce oil demand.