Oil prices saw a modest uptick on Thursday due to a decrease in U.S. crude inventories and strong crude imports from China. However, a cautious sentiment prevailed among investors due to concerns about a weaker demand outlook.
In the settlement, September Brent futures recorded a gain of 18 cents, equivalent to 0.2%, reaching $79.64 per barrel. At the same time, August U.S. West Texas Intermediate (WTI) crude rose by 28 cents, or 0.4%, settling at $75.63 a barrel.
It’s worth noting that the August WTI contract was set to expire on Thursday, while the more active September WTI crude settled at $75.65, marking an increase of 36 cents.
Throughout the year, strong economic data, low employment rates, and controlled inflation have contributed to the robust U.S. oil demand, especially since the Federal Reserve embarked on an aggressive rate-hiking campaign.
The U.S. Federal Reserve is expected to conclude this rate-tightening cycle by raising its benchmark overnight interest rate by another 25 basis points to the range of 5.25% to 5.50% next week.
John Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois, pointed out that although the U.S. economy has shown remarkable strength, the recent surge in the Dow Jones Industrial Average might be vulnerable, particularly if the Fed proceeds with the anticipated rate hike.
In the previous session, oil prices declined as U.S. inventories fell below analysts’ expectations. However, the decrease was not as substantial as some market participants had hoped, partly due to lower gasoline demand for this time of year, according to Bob Yawger, director of energy futures at Mizuho in New York.
China’s economic recovery, following the easing of COVID-19 restrictions, has fallen short of expectations. Despite a nearly 50% year-on-year surge in oil imports in June, stock levels in China rose to nearly an all-time high. Traders revealed that China had been pragmatically purchasing discounted Russian crude.
Both the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency expect China’s demand to continue rising in the second half of the year, making it a significant driver of global growth.
Chinese government data from Thursday revealed that crude oil imports from Russia reached an all-time high in June, even though discounts against international benchmarks had narrowed.
Citi analysts cautioned that crude prices might face challenges in finding a clear direction due to the mixed global demand outlook in the coming weeks. They explained that demand for gasoline and jet fuel appears strong, but petrochemicals and diesel demand show signs of weakness.
The analysts also noted that Brent crude prices had broken through to a higher range this month after being confined to the $72-$78 range in May and June. This upward momentum was supported by Saudi output cuts and geopolitical risks, which bolstered demand in the market.
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