Oil prices $1 a barrel higher, driven by lower stock levels

London — Oil prices rose by more than $1 a barrel on Wednesday as markets focused on supply tightness heading into winter and a “soft landing” for the US economy.

Brent crude futures were up 85c, or 0.9%, to $94.81 a barrel by 8.27am GMT, after rising by as much as $1.03. US West Texas Intermediate crude futures climbed $1.06, or 1.17%, to $91.45 after gaining as much as $1.24.

Industry data released on Tuesday showed US crude oil stockpiles rose last week by about 1.6-million barrels, against analysts’ expectations for a drop of about 300,000 barrels.

However, markets continued to worry about US crude stockpiles at the key Cushing, Oklahoma, storage hub falling below minimum operating levels.

Further drawdowns at Cushing, the delivery point for US crude futures, could also provide new upward pressure on oil markets as it would compound supply tightness stemming from supply cuts by Opec+.

“Oil prices are overall relatively strong amid the current tightening of supply,” said CMC Markets analyst Leon Li; however the price support from Russia and Saudi Arabia’s supply cuts may be limited through the year-end.

“[Economic] data from countries in Europe and the US have recently weakened … Oil prices in October may show a volatile trend as a whole. It is unlikely to exceed $100 in the short term, but it is expected to be strong.”

US government data on oil inventories is expected at 2.30pm GMT.

Russia last week imposed a temporary ban on petrol and diesel exports to most countries to stabilise the domestic market, and though it later softened restrictions, these could put upward pressure on crude oil demand by refineries.

Meanwhile, a “soft landing” for the US economy is more likely than not, Minneapolis Federal Reserve Bank president Neel Kashkari said on Tuesday, but there is also a 40% chance that the Fed will need to raise interest rates “meaningfully” to beat inflation.

The Bank of England has concluded its tightening cycle and will probably keep the Bank Rate at 5.25% until at least July 2024, a Reuters poll of economists showed, although a minority said it would hike rates again in 2023.

Higher interest rates increase borrowing costs, which could slow economic growth and reduce oil demand.

Reuters