- A stronger US dollar is capping oil gains.
- Investors expect a possible 100bps rate hike from the FED.
- Supply concerns continue amid fighting in oil-producing countries.
Crude oil (CL) futures prices surged this week amid weak demand and supply disruptions as the United States prepared for a potential rail shutdown. However, oil prices were steady on Thursday as supply worries were balanced by prospects of reduced demand and a strong US dollar ahead of a potential significant hike in interest rates.
Expectations that the US Federal Reserve will keep tightening policy helped the dollar stay close to recent highs. US PPI data was the latest indication of high inflation in the US.
PPI rose to -0.1% from a previous -0.4%, in line with forecasts. This increase at the producer level is bound to be passed on to the consumers.
This week, the International Energy Agency forecasted that the growth in oil consumption would come to a standstill in the fourth quarter. However, some economists believe supply concerns will still outweigh demand worries.
“The oil price has been pricing in a global recession, but even with flat global growth, the oil demand would remain quite strong relative to continued supply worries,” said Clifford Bennett, chief economist at ACY Securities, in a note.
“The market has been focussing on the demand side of late but has probably priced too big a fall in actual demand while forgetting supply can still be somewhat problematic,” said Bennett.
Another factor supporting the market is the growing risk of a US rail disruption caused by an ongoing labor dispute. Three unions are negotiating a new contract that may impact rail shipments, which are crucial for delivering goods like petroleum.
Crude Oil prices have fallen significantly since March As a result of supply concerns exacerbated by Russia’s invasion of Ukraine and pressure from the likelihood of a global recession
Recent fighting between the oil-producing nations of Armenia and Azerbaijan, which is connected to a long-standing disagreement, created another risk to supply.
Elsewhere, according to data released on Wednesday, US crude stocks increased by 2.4 million barrels more than anticipated. However, this increase was again driven by continuous releases from the Strategic Petroleum Reserve. It is part of a program that is set to conclude next month.