Oil extends gains on large drop in US crude stocks and hurricane concerns

A man walks onto a dock ahead of Hurricane Idalia in Florida. Bloomberg

Oil prices extended their gains on Wednesday on a large drop in US crude stocks and supply concerns triggered by a hurricane in the Gulf of Mexico.

Brent, the benchmark for two-thirds of the world’s oil, was trading 0.54 per cent higher at $85.95 a barrel at 5.09pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 0.65 per cent at $81.69 a barrel.

On Tuesday, Brent settled 1.27 per cent higher at $85.49 a barrel. WTI closed up 1.32 per cent at $81.16 a barrel.

“Oil prices appear to be stabilising around the middle of their new higher range, in the aftermath of Opec+ cuts,” said Craig Erlam, senior market analyst at Oanda.

“There remains considerable uncertainty around the outlook for the global economy, from China's sluggish rebound to interest rates and possible recessions elsewhere,” Mr Erlam said.

“But on the supply side, major producers appear committed to ensuring the market remains tight and prices higher.”

Hurricane Idalia, forecast to reach Category 4 intensity, is expected to make landfall in Florida on Wednesday, following its journey across the Gulf of Mexico, a region that accounts for 15 per cent of US oil production and 1 per cent of natural gas output.

Meanwhile, US crude inventories, an indicator of fuel demand in the world’s largest economy, fell by 11.5 million barrels last week, according to the American Petroleum Institute.

Analysts polled by Reuters were expecting a draw of 3.3 million barrels.

The US Energy Information Administration will release its official weekly crude inventory data later today.

Futures also gained as weak economic data out of the US eased concerns of further monetary tightening.

The Conference Board index, a gauge of US consumer confidence, dropped to 106.1 this month, from 114 in July, data showed.

“The US consumer has held largely up to now despite high inflation and rising interest rates, but the survey suggested that this could come under pressure in the coming months, especially as the number of job openings in July fell back,” said Daniel Richards, Mena economist at Emirates NBD.

At the Jackson Hole symposium in Wyoming last week, US Federal Reserve chairman Jerome Powell said the central bank would continue to aim to bring inflation down to 2 per cent.

The US economy is not cooling as expected, with stronger-than-anticipated gross domestic product growth and “especially robust” consumer spending, he said.

In China, the world’s second-largest economy and top crude importer, state-owned banks are preparing to cut interest rates on existing mortgages as part of efforts to revive the country’s property sector, which has been hit by a debt crisis.

The reduction could be as much as 20 basis points in some cases, Reuters reported on Tuesday, citing sources.

The Asian country's post-coronavirus economic recovery has lost momentum mainly due to a deepening property slump and weak consumer spending.

On Monday, China halved the stamp duty on stock transactions in an attempt to boost the country’s struggling market, state news agency Xinhua reported, citing the Finance Ministry.

China's securities regulator has approved the launch of 37 retail funds to help infuse new capital into the market and said it would slow the pace of initial public offerings.