Oil prices are rising as the market concentrates on the supply shortage

27 Sep 2023 , 10:15 AM

Early Wednesday trading saw a little increase in oil prices as markets concentrated on supply constraints ahead of the winter and a ‘soft landing’ for the American economy.

The price of Brent oil futures increased by 33 cents, or 0.4%, to $94.29 per barrel, while the price of U.S. West Texas Intermediate crude futures up by 31 cents, or 0.3%, to $90.70.

U.S. crude oil stockpiles increased by approximately 1.6 million barrels last week, contrary to analysts’ predictions of a reduction of about 300,000 barrels, according to industry figures released on Tuesday.

Markets were still concerned, meanwhile, that U.S. oil stockpiles at the important Cushing, Oklahoma, storage facility might not reach required levels.

Additional drawdowns at Cushing, the delivery point for U.S. crude futures, might add to the supply tightness brought on by OPEC+ and its allies’ supply curbs, which collectively are known as OPEC+, adding new upward pressure on oil markets.

While some analysts anticipate that periodic refinery maintenance in the autumn would assist increase crude stockpiles somewhat, others are concerned that strong export demand may cause barrels to be diverted.

On the demand side, although Russia last week loosened its restrictions on the export of high-quality petrol and diesel, the restrictions still stand.

Exports of goods already approved by Russian Railways and Transneft may proceed, and the prohibition will not apply to fuel for bunkers and gasoil with a greater sulphide content.

Neel Kashkari, president of the Minneapolis Federal Reserve Bank, said on Tuesday that a ‘soft landing’ for the American economy is more likely than not, but there is still a 40% risk that the Fed will need to raise interest rates ‘meaningfully’ to combat inflation.

According to Kashkari, there is a 60% chance that the Fed will ‘potentially’ raise rates by another quarter-point and then leave borrowing costs unchanged for ‘long enough to bring inflation back to target in a reasonable period of time.’

According to a Reuters poll of analysts, the Bank of England has finished its tightening cycle and will probably retain the Bank Rate at 5.25% until at least July, even though a sizable minority predicted another rate increase this year.

Higher borrowing costs due to higher interest rates could hamper economic development and lower demand for oil.

A bipartisan package that would have prevented the government from shutting down in only five days advanced in the U.S. Senate, but a competing proposal was being pushed forward in the House by Republicans.

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