NAGA : Oil Edges Up After US Stocks Build - Big Inflation Figures

Oil prices rose a little on Wednesday, despite rising US oil inventories and inflation data that strengthened the case for yet another significant Federal Reserve interest rate increase.

Continue reading to get the latest on this free-flowing commodity.

What happened in the oil market on Wednesday?

US West Texas Intermediate (WTI) crude increased 46 cents to $96.30 per barrel, while Brent crude finished 8 cents higher at $99.57 per barrel.

Since reaching $139 in March, when it was almost at its all-time high in 2008, the global benchmark Brent fell significantly as a result of recent oil selling by investors who are concerned that aggressive rate hikes to combat inflation will stifle economic growth and reduce oil demand. As a result, prices dropped more than 7% on Tuesday in choppy trading to end below $100 for the first time since April, and the relative strength indicator, a gauge of market mood, indicates that prices are oversold.

What's happening in the physical market?

The physical market is still constrained. Important benchmarks, including Forties crude and US Midland crude, are trading at premiums to the futures market, painting a picture that differs from what is happening in futures, which have been impacted by inflation data that portends additional rate hikes from major central banks. One of the grades supporting Brent futures, Forties crude, was offered at a record-high premium to the benchmark on Wednesday, plus $5.35 a barrel. Although lower than premiums achieved in late February during the invasion of Ukraine, US Midland crude was trading at a premium of $1.50 per barrel over WTI, signaling tightness.

In a little break from the market tightness, US oil stocks increased more than anticipated. In contrast to predictions expecting a slight decline in stocks, government statistics revealed that US commercial oil stocks rose by 3.3 million barrels.️

What should we expect from the oil market?

The Organization of the Petroleum Exporting Countries and the International Energy Agency both issued monthly assessments this week warning that demand for oil was weakening, especially in the biggest economies across the world.

Consumer prices in the United States rose 9.1% in June, as gasoline and food prices remained high, bolstering the case for the Federal Reserve to raise interest rates by 75 basis points later this month. Lower growth expectations have also prompted a flight to the US dollar for safety. On Wednesday, the dollar index reached a 20-year high, making oil purchases more expensive for non-US buyers. ⛽

With the US CPI report and the renewed COVID-19 curbs in China, we would expect the market to trade at a low and see prices dip slightly in the coming days. Oil prices will be determined by factors such as the Fed raising key interest rates, the new COVID-19 strain spreading in China, and the likelihood of a global recession.

Summary

• US crude and fuel inventories rise as demand declines.
• The physical market remains tight as important benchmarks trade at premiums to the futures market.
• Consumer prices in the United States reached 9.1% in June, as gasoline and food prices remain high. ⛽

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