Oil steadies amid surprise drop in US crude stocks

Brent crude has lost more than 4% in the past two sessions

Pump jacks operate in front of a drilling rig at an oil field in Midland, Texas. Reuters

Oil prices were steady in morning trading on Thursday as an unexpected drop in US crude stocks helped to offset interest rate concerns.

Brent, the benchmark for two thirds of the world’s oil, was 0.33 per cent higher at $82.39 a barrel at 10.42pm UAE time.

West Texas Intermediate, the gauge that tracks US crude, was up 0.26 per cent at $76.45 a barrel.

US crude inventories – an indicator of fuel demand – fell by 1.7 million barrels last week, ending 10 straight weeks of increases, the US Energy Information Administration (EIA) said.

Petroleum stocks were down by 1.1 million barrels, while distillate inventories grew by 100,000 barrels in the week ending on March 3, EIA data showed.

Edward Moya, senior market analyst at Oanda, said oil markets were expecting a stock build of 120,000 barrels. Analysts polled by Reuters estimated an increase of 395,000 barrels.

Brent has lost more than 4 per cent in the past two sessions amid concerns of aggressive interest rate increases by the US Federal Reserve to tackle inflation.

At a congressional hearing on Tuesday, Fed chairman Jerome Powell hinted that interest rates may need to increase further and at a faster pace than previously anticipated following stronger-than-expected US economic data for January.

“Crude prices can’t shake off fears that the Fed is going to send the US economy into a bad recession,” Mr Moya said.

“A small EIA crude oil inventory draw wasn’t enough of a catalyst to help oil prices stabilise. The amount of crude demand uncertainty over the short-term is keeping oil prices heavy.”

Investors will be closely watching the US non-farm payrolls report for February, which will be released on March 10.

The consumer price index, a key measure of inflation, is due on March 14.

“Over the next seven days, energy traders will have a chance to see the latest jobs and inflation reports, which means we could have the market confidently pricing in a slightly worse than mild recession,” Mr Moya said.

Talks of higher interest rates have also supported the dollar.

The US Dollar Index — a measure of its value against a weighted basket of major currencies — has gained about 0.6 per cent this week. It was down 0.10 per cent at 105.56 last Thursday.

A stronger dollar makes dollar-denominated oil more expensive for holders of other currencies.