Oil extends gains with support from Fed and demand outlook

Oil extended gains after a big draw in US crude inventories, while the prospect of a slower pace of interest-rate hikes from the Federal Reserve filtered through markets, buoying commodities.

West Texas Intermediate futures climbed above $99 a barrel after closing 2.4 per cent higher in the previous session. US crude stockpiles dropped by the most since the end of May, while exports rose to a record, according to government data. Shell plc’s chief said that oil prices are more likely to rise than fall as the tightness in supply outweighs any risks to demand.

While the Fed raised interest rates by 75 basis points for a second month to combat surging inflation, Chair Jerome Powell said the pace of hikes would slow at some point. Oil has been whipsawed recently as investors weighed concerns over an economic slowdown against signs of tightening markets.

Futures are up around 30% this year despite periods of volatile trading characterized by sharp swings and low liquidity. Supermajors are reporting second-quarter earnings this week and are expected to post bumper profits after energy prices soared. Shell Plc reported a record profit on Thursday.

A weaker dollar has also helped to put wider commodity markets on a firmer footing. The Bloomberg Dollar Spot Index slipped for a second session to the lowest level since July 5, making commodities priced in the currency more attractive to investors.

“Both financial market factors and fundamentals are helping oil today,” said Giovanni Staunovo, an analyst at UBS AG in Zurich. “On the one side there’s the Fed and the weaker dollar, while on the other we have supportive inventory data and diminishing concerns over demand.”

Prices

  • WTI for September delivery rose two per cent to $99.23 a barrel at 10:23 a.m. in London.
  • Brent for September settlement gained 1.6 per cent to $108.32 a barrel.

US crude stockpiles fell by 4.52 million barrels last week, while exports rose to a record 4.55 million barrels a day, according to the Energy Information Administration. Gasoline inventories declined by 3.3 million barrels.

“Where we are today, there is more upside than downside when it comes to the oil price,” Shell chief executive officer Ben van Beurden said in an interview with Bloomberg TV on Thursday. “Demand hasn’t fully recovered yet and supply is definitely tight.”

Meanwhile, the spread between WTI and global benchmark Brent has widened this week as a reduction in Russian flows exacerbates market tightness in Europe.

© 2022 Bloomberg L.P.

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