Oil prices climb as markets focus on supply tightness

On Wednesday, oil prices surged over $1 as markets focused on supply constraints heading into winter and a “soft landing” for the US economy.

By 0340 GMT, Brent crude prices had risen 86 cents, or 0.9%, to $94.82 per barrel, while West Texas Intermediate crude futures had risen 86 cents, or 0.9%, to $91.25.

According to industry statistics released on Tuesday, US crude oil stockpiles increased by roughly 1.6 million barrels last week, compared to analysts’ estimates for a reduction of about 300,000 barrels.

However, markets were concerned that US crude stockpiles at the critical Cushing, Oklahoma, storage facility had fallen below minimum functioning levels.

Further drawdowns at Cushing, the delivery point for US crude futures, could also put further upward pressure on oil markets, compounding supply tightness caused by production curbs by the Organization of the Petroleum Exporting Countries and allies, known as OPEC+.

“Oil prices are relatively strong overall amid the current tightening of supply,” said CMC Markets analyst Leon Li, adding that price support from Russia and Saudi Arabia production cutbacks may be limited through the end of the year.

“(Economic) data from Europe and the United States have recently deteriorated… Oil prices in October may exhibit a turbulent pattern overall. It is unlikely to reach $100 in the near future, but it is projected to be strong.”

At 10:30 a.m. (1430 GMT), the US government will release data on oil inventories.

While some analysts believe that the yearly autumn maintenance at refineries will assist raise oil stocks slightly, others are concerned that heavy export demand would pull barrels away.

Furthermore, ANZ Research analysts stated in a Wednesday note that Russia’s new prohibition on gasoline and diesel exports “means upward pressure on crude oil demand from refineries.”

In order to stabilize the local market, Russia announced a temporary embargo on gasoline and diesel exports to all nations outside a circle of four ex-Soviet states last week, but later relaxed restrictions.

Exports of products currently accepted by Russian Railways and Transneft are permitted, while higher-sulfur gasoil and bunker fuel are exempt from the prohibition.

Meanwhile, Minneapolis Federal Reserve Bank President Neel Kashkari stated on Tuesday that a “soft landing” for the US economy is more likely than not, but there is still a 40% risk that the Fed will need to hike interest rates “meaningfully” to fight inflation.

Kashkari estimated that the Fed will “potentially” raise rates another quarter-point and then hold borrowing costs steady “long enough to bring prices back to target in an acceptable amount of time.”

According to a Reuters survey of economists, the Bank of England has completed its tightening cycle and will likely retain the Bank Rate at 5.25% until at least July, while a sizable minority believe it will raise rates again this year.

Higher interest rates raise borrowing costs, which may hinder economic development and diminish demand for oil.

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