oil prices

Oil prices soared to their highest levels in three months on Tuesday, driven by indications of tighter supplies and reassuring commitments from Chinese authorities to bolster the world’s second-largest economy, providing a significant boost to market sentiment.

The Brent futures settled at $83.64 per barrel, recording a gain of 90 cents, while briefly touching $83.87 earlier in the session, marking the highest price since April 19.

Similarly, the U.S. West Texas Intermediate (WTI) crude saw an increase of 89 cents, reaching $79.63 per barrel. Prior to this, it peaked at $79.90 per barrel, also hitting its highest mark since April 19.

Supporting the upward trajectory, both crude benchmarks have achieved four consecutive weeks of gains, with expectations of tightening supplies due to output cuts implemented by the Organization of the Petroleum Exporting Countries (OPEC) and its allies.

Market observers have noted that earlier-loading Brent contracts are commanding higher prices compared to later loadings, revealing a market structure known as “backwardation,” signaling traders’ belief in constrained supply. The six-month spread is hovering near a 2-1/2-month high.

Price Futures Group analyst, Phil Flynn, commented on the prevailing market sentiment, stating, “The market is getting more concerned about the trend of tightening oil supplies, and it’s becoming more obvious to the naysayers that the expected drop-off in demand isn’t happening.”

In China, the world’s second-largest oil consumer, leaders have pledged to enhance their economic policy support, contributing to the positive market outlook.

However, some economic data has limited the gains. Business activity in the euro zone contracted more than anticipated in July, as revealed by a survey. Similarly, in the United States, business activity slowed to a five-month low in July, according to a closely watched survey.

Nevertheless, falling input prices and slower hiring suggest progress on the Federal Reserve’s part in its efforts to curtail inflation. Markets are anticipating 25-basis-point rate hikes from both the Fed and the European Central Bank this week.

According to market sources citing American Petroleum Institute figures, U.S. crude oil and distillate inventories witnessed changes last week, with gasoline stockpiles falling while crude stocks gained approximately 1.32 million barrels in the week ending July 21.

Gasoline inventories fell by approximately 1.04 million barrels, whereas distillate inventories rose by around 1.61 million barrels. U.S. government data on inventories is expected on Wednesday.

Adding to the bearish sentiment, sources have reported that a 110,000 barrel-per-day unit at a significant U.S. refinery in Baton Rouge will be shut down for up to four weeks.


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