Oil Rises 3% as Tight Supply Outweighs Demand Worries

By Adedapo Adesanya

Oil settled sharply higher on Thursday, rebounding from steep losses the previous two sessions, as investors returned their focus to tight supply despite nagging fears of a potential global recession.

The price of the Brent crude futures went up by $3.96 or 3.9 per cent during the session to $104.65 per barrel as the US WTI crude futures climbed $4.20 or 4.3 per cent to $102.73 a barrel.

Following a volatile start to the week that saw prices fall to their lowest in over two months, traders shrugged off recession fears and turned their focus back to the undersupply issues.

Market analysts said that with Russian oil supplies set to drop as the year progresses and it runs out of Western parts to maintain fields, and with the rest of the Organisation of the Petroleum Exporting Countries (OPEC) uninvested in maintaining production capacity, prices will remain in the three digits.

More supply disruption is expected as traders are bracing for oil supply disruptions at the Caspian Pipeline Consortium (CPC), which has been told by a Russian court to suspend activity for 30 days.

Exports via the CPC handle about one per cent of global oil supplies.

The United States tightened sanctions on OPEC member, Iran, on Wednesday, pressuring the Middle East oil producer as it seeks to revive a 2015 Iran nuclear deal and unleash its exports.

The US Treasury Department said in a statement that a network of people and entities used a web of Gulf-based front companies to facilitate the delivery and sale of hundreds of millions of dollars in petroleum products from Iranian firms to China and elsewhere in East Asia.

In Doha, Qatar last week, indirect talks between both countries ended without a breakthrough over how to salvage the deal, under which Iran had reined in its atomic programme.

Meanwhile, US crude oil stockpiles rose by 8.2 million barrels last week, driven by an increase in inventories and as refiners cut output, the Energy Information Administration said on Thursday.

Also, the country witnessed an uptick in the petroleum product supplied, the best pointer for US consumer demand as it rose to 20.5 million barrels per day in the most recent week.