Oil reverses losses but demand outlook caps gains

Oil prices reversed earlier losses to trade about 1% higher on Thursday on expectations that US interest rates have peaked, but a forecast by the International Energy Agency (IEA) of slower demand next year, along with higher US inventories limited further gains.

Brent futures rose $1.01, or 1.2%, to $86.83 a barrel at 9.52am GMT, while West Texas Intermediate gained 73c, or 0.9%, to $84.22.

World shares rose and the dollar and bond market borrowing costs held steady ahead of US consumer inflation data and minutes from the most recent European Central Bank meeting that will add to the hotly-contested debate on where interest rates are heading.

Lower US bond yields are stoking risk appetite and that is supporting equities and oil, UBS analyst Giovanni Staunovo said.

“Both the Saudi energy minister Prince Abdulaziz and Russia’s deputy prime minister Novak reiterating their ongoing collaboration to balance oil markets are helping,” he added.

Saudi energy minister Prince Abdulaziz bin Salman said in an interview with Russian TV that it was necessary to be “proactive” on bringing stability to the oil market, which had recently been hit by concerns that the Israel-Hamas war could disrupt supplies from the Middle East.

Russian deputy prime minister Alexander Novak also reassured markets, saying the current oil price factored in the Middle East conflict and showed that the risk from it wasn’t high.

The IEA lowered its oil demand growth forecast for 2024, suggesting harsher global economic conditions and progress on energy efficiency will weigh on consumption. The agency now sees 2024 demand growth at 880,000 barrels a day compared with its previous forecast of 1-million bbl/day.

However, it raised its 2023 demand forecast to 2.3-million bbl/day from 2.2-million bbl/day previously.

US data which showed a big build in crude and petrol inventories tempered the rally. Crude oil stockpiles expanded by about 12.9-million barrels, according to market sources citing American Petroleum Institute figures on Wednesday. That was much higher than the 500,000-barrel gain expected by analysts surveyed by Reuters.

Petrol inventories also rose, by 3.6-million barrels, a stark contrast to the 800,000-barrel drop expected by analysts, and continued to stoke worries of slowing fuel demand in the US.

Markets are awaiting further inventory data cues from the US Energy Information Administration due at 3pm GMT.

Reuters