Oil steady as unexpected decline in U.S. crude stocks counteracts demand worries

22 Jun 2023 , 12:37 PM

Early on Thursday, oil prices maintained a large portion of their gains from the previous day as markets weighed the possibility of reduced demand following the Federal Reserve chairman’s hint at additional interest rate hikes against an unexpected draw in U.S. crude oil stocks.

While U.S. West Texas Intermediate (WTI) crude futures were down 5 cents, or 0.1%, at $72.48 at, Brent futures fell 8 cents, or 0.1%, to $77.04 per barrel.

The benchmarks had risen $1 a barrel the day before as U.S. corn and soybean prices soared to multi-month highs, fueling hopes that crop shortages elsewhere could reduce the blending of biofuels and raise oil demand.

Contrary to experts’ predictions for a rise of 300,000 barrels, U.S. crude oil stockpiles decreased by around 1.2 million barrels in the week ending June 16, according to sources quoting data from the American Petroleum Institute, an industry body.

Later on Thursday, the U.S. Energy Information Administration is expected to release official inventory statistics. After the Juneteenth holiday on Monday, the report was postponed by one day.

In contrast, Fed Chair Jerome Powell reiterated in congressional testimony that the central bank’s goal is to control inflation and stated that two additional rate hikes of 25 basis points by year’s end were ‘a pretty good guess.’

Consumer borrowing costs ultimately rise with higher interest rates, which might impede economic development and lower demand for oil.

In response to Powell’s remarks, the dollar edged higher versus a basket of currencies. Oil demand is affected by a stronger dollar since it increases the cost of the commodity for customers using foreign currencies.

However, an executive at American shale producer EOG Resources warned Reuters on Wednesday that the supply of crude oil will be constrained in the next months due to modest increases in U.S. oil production and cuts by the OPEC+ producing-nations group.

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