Oil Prices Climb 1% As U.S. Fuel Inventories Fall

Oil prices recovered slightly as data pointed to firm U.S. fuel demand, providing respite after a 5% drop a day earlier on fears that demand will suffer from increased China COVID curbs and central bank interest rate hikes.

Oil prices are currently trading around $95 per barrel for Brent crude, and just below $89 a barrel for the U.S. West Texas Intermediate.

Analysts told CNBC they expect oil prices to hold steady through the second half of 2022, though they said the potential impact of an economic recession has not yet been priced in. In a recession, oil prices tend to fall, which could provide consumers some respite.

Brent crude futures rose $1.43, or 1.5%, to $94.45 a barrel by 0054 GMT after gaining 0.7% on Friday. U.S. West Texas Intermediate crude was at $88.12 a barrel, up $1.25, or 1.4%, following a 0.3% advance in the previous session. U.S. markets are closed for a public holiday on Monday.

Oil prices have fallen in the past three consecutive months, after touching multi-year highs in March, on concerns that interest rate hikes and COVID-19 curbs in parts of China, the world’s top crude importer, may slow global economic growth and cool oil demand.

Both OPEC and the United States saw production hit its highest levels since the early days of the coronavirus pandemic, with OPEC’s output hitting 29.6 million barrels per day (bpd) in the most recent month, according to a Reuters survey, while U.S. output rose to 11.82 million bpd in June. Both are at their highest levels since April 2020. 

“The fear that there’s a slowdown here and then also the potential here for some additional supply increases coming down the pike is having some pressure on the market,” said Mike Sabo, market strategist at RJO Futures in Chicago.

The price of crude oil has surged this year, with Brent coming close to a record high of $147 in March as Russia’s invasion of Ukraine exacerbated supply concerns. Rising fears over high interest rates, inflation and recession risks have since weighed on the market.

Oil’s gain was limited by a strong U.S. dollar, which hit a 20-year high on Monday after the Federal Reserve chairman signalled that interest rates would be kept higher for longer to curb inflation.

U.S. crude oil stockpiles likely fell 600,000 barrels with distillates and gasoline inventories also seen down, a preliminary Reuters poll showed on Monday.

Russia, being the world’s second-largest oil producer and key member of OPEC+, doesn’t support a production cut at this time and will keep its output steady.

Commodity traders will also be monitoring the status of negotiations to reopen the 2015 nuclear agreement between the West and Iran, which have dragged on despite the fact that a deal might enable Tehran to boost exports and boost supplies around the world.

The deal with the closure of investigations by the U.N. nuclear watchdog was rejected by the White House on Friday,  a day after Iran reopened the issue, according to a Western diplomat. 

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