Oil Prices Climb $2 as Supply Concerns Outweigh Weak Demand
By Adedapo Adesanya
Oil prices rose more than $2 on Wednesday as caution over tightening supply countered the negative impact of uncertain demand, with Brent chalking up $2.38 or 2.6 per cent to trade at $92.41 a barrel as the West Texas Intermediate climbed higher by $2.73 or 3.3 per cent to trade at $85.55 a barrel.
Amid many bearish factors, prices have rallied since the Organisation of the Petroleum Exporting Countries agreed to reduce its production target by roughly 2 million barrels a day, though that is expected to only include about 1 million barrels of actual output declines.
A pending European Union ban on Russian crude and oil products, and the output cut from OPEC are proving to hold the market up.
The sanctions on Russian oil imports will likely be the new focus of the oil market in the coming weeks, and there are expectations that Brent oil futures will average $100 per barrel in Q4 2022 on the back of supply disruption from the EU sanctions.
On Wednesday, President Biden announced the release of another 15 million barrels of crude from the Strategic Petroleum Reserve (SPR), which would complete the 180-million-barrel release program announced earlier this year to counter soaring prices at the pump.
The US plans to repurchase oil for the reserve if prices fall enough.
The White House said in a fact sheet it would start replenishing the SPR when oil prices fall to between $67 and $72 per barrel, noting this would ensure long-term demand for oil and stimulate local production.
The reserve release would be the last sale from the planned sale of 180 million barrels of oil announced shortly after Russia invaded Ukraine in February.
Market analysts note that an SPR release is near-term bearish but long-term bullish because the US was going to buy it back.
Prices rose even as the US Energy Information Administration (EIA) reported that crude oil inventories had shed 1.7 million barrels in the week of October 14 compared with an inventory build of 9.9 million barrels for the previous week and an American Petroleum Institute (API) estimate of declines in both crude and fuels for last week.
China has also continued with strict COVID-19 curbs this year, hurting business and economic activity in the world’s largest crude importer.