Oil rises for third day as tighter market vies with demand risks

Oil rose for a third day as signs the physical market is tightening and a stall in the dollar’s rally offset growing demand risks in China and the US.

Global benchmark Brent traded above $85 a barrel, and is up more than 2% since last Wednesday’s close. Supply curbs from OPEC+ linchpins Russia and Saudi Arabia have driven a rally since late June, while US crude stockpiles have shrunk to the least since January.

The dollar was steady Monday following declines in the previous two sessions, making commodities that are priced in the currency cheaper for many buyers. That came after the greenback had been strengthening from mid-July.

A stall in the dollar rally over the past few sessions is aiding oil, said Yeap Jun Rong, a market strategist for IG Asia Pte. “All eyes will be on whether China will be able to pull off a recovery through the rest of the year to provide further conviction for oil prices to continue higher.”

Economic malaise in China — ranging from downbeat consumers to struggling exports — and stubbornly persistent inflation risks in the US saw oil fall last week. Chinese banks made a smaller-than-expected cut to their benchmark lending rate Monday and avoided trimming the reference rate for mortgages, despite the central bank putting pressure on lenders to boost loans.

The annual Jackson Hole symposium in Wyoming on Thursday and Friday, which features speakers including Federal Reserve Chair Jerome Powell, may provide clues on the direction of interest rates. More increases in borrowing costs may be coming in the US after minutes of the Fed’s July meeting showed officials remained concerned about the inflationary threat.

Meanwhile, some refined products such as diesel — the workhorse fuel of the global economy — have started pricing in scarcity this winter, boosting their premium to the oil from which they are made. Gasoline futures in New York have risen by 15% this year, also outpacing crude.

Prices:
Brent for October settlement rose 0.7% to $85.39 a barrel at 12:16 a.m. in Singapore. WTI for September delivery was 0.8% higher at $81.91 a barrel.

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