Crude oil rallied Wednesday 28th June after an industry report of a larger-than-expected drop in US crude reserves suggested robust demand and helped offset concerns about further hikes in interest rates.
Oil reserves fell by about 2.4 million barrels, according to market sources, citing data from the American Petroleum Institute (API) industry group ahead of official Energy Information Administration data.
“This morning’s relief [Wednesday] comes from last night’s API statistics,” said Tamas Varga of oil brokerage PVM.
While outright prices rose, the Brent spot contract discount for next month deepened, a so-called “Contango” structure that indicates ample supply.
Brent is down about 15% this year as rising interest rates hit investor appetite, while China’s economic recovery has faltered after several months of weaker-than-expected consumer spending and other data.
“For now, the market remains muted on demand concerns running high,” said Ole Hansen, head of commodities strategy at Saxo Bank. “OPEC’s production cuts helped to avoid a deeper setback.”
“Overall, the commodities sector, including crude oil, is reeling from risk adversity amid concerns about China’s growth and the strength of US data pointing to higher rates,” he said.
European Central Bank President Christine Lagarde said on Tuesday June 27th that persistently high inflation will require the bank to avoid declaring an end to rate hikes.
A rise in US consumer confidence in June also led to market concerns that the Federal Reserve would likely have to keep raising interest rates.
Still, some analysts expect the market to tighten in the second half of 2023, in part due to OPEC supply cuts and Saudi Arabia’s voluntary reduction for July.
