Oil prices fluctuate after gaining 3% on large draw in US crude stocks

Crude oil storage tanks at the Cushing oil hub in Oklahoma. There has been a large drop in US crude stocks. Reuters

Oil prices rose slightly on Thursday after posting gains of nearly 3 per cent the previous day following a large drop in US crude stocks.

Prices were down in early trading on concerns about further monetary tightening.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.11 per cent higher at $74.11 a barrel at 1.39pm UAE time, while West Texas Intermediate, the gauge that tracks US crude, was up 0.11 per cent at $69.64 a barrel.

On Wednesday, Brent settled 2.45 per cent higher at $74.03 a barrel, while WTI was up 2.75 per cent at $69.56.

US crude inventories, an indicator of fuel demand, fell by 9.6 million barrels last week, according to the US Energy Information Administration.

Analysts polled by Reuters were expecting a decrease of 1.8 million barrels.

Total petroleum stocks rose by 600,000 barrels in the week that ended on June 23, while distillate inventories increased by 100,000 barrels, EIA data showed.

“US crude exports rose above the 5 million barrels per day level, jet demand rose to the highest level since 2019, and the four-week average gasoline demand surged to the best levels since December 2021,” said Edward Moya, senior market analyst at Oanda.

“The oil outlook was too pessimistic, and this report reset the market,” Mr Moya said.

However, investors remain cautious about further monetary tightening by global central banks and its impact on crude demand.

US Federal Reserve chairman Jerome Powell has indicated that policymakers could raise interest rates “two or more times” by the end of the year.

“Inflation has moderated somewhat since the middle of last year. Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2 per cent has a long way to go,” Mr Powell said at an event in Madrid on Thursday.

“We see the effects of our policy tightening on demand in the most interest rate-sensitive sectors of the economy, particularly housing and investment. It will take time, however, for the full effects of monetary restraint to be realised, especially on inflation,” he said.

Earlier this month, the Fed hit pause on increasing interest rates for the first time since it started its monetary tightening cycle in March 2022 as it assesses the impact on the economy.

It signalled it would resume raising rates again this year if needed. The Fed’s next meeting will be on July 25 to 26.

On Tuesday, European Central Bank president Christine Lagarde also said it was too early to “declare victory” over inflation.

“We are seeing a decline in the inflation rate as the shocks that originally drove up inflation wane and our monetary policy actions are transmitted to the economy,” Ms Lagarde said.

“But the pass-through of those shocks is still ongoing, making the decline in inflation slower and the inflation process more persistent.”

Last week, the Bank of England raised its interest rates by 0.5 percentage points to 5 per cent, after inflation in the UK rose more than expected in May.

The rate increase was the sharpest since February and double the figure that many economists had been expecting.

The International Energy Agency and Opec expect the oil market to tighten in the second half of the year amid Opec+ cuts and a rebound in Chinese crude demand.

However, resilient Russian crude supply and rising output in countries under sanctions such as Iran and Venezuela could potentially result in a smaller deficit in 2023, analysts have said.

Several investment banks, including Goldman Sachs, MUFG and UBS, have slashed their short-term oil price forecasts over the past few weeks, citing higher-than-expected crude supply in the market.