Adedapo Adesanya
By Adedapo Adesanya
The prices of oil rose modestly on Wednesday even after crude inventories increased and inflation figures jumped in the United States, the world’s largest oil producer.
Brent crude settled up by 8 cents at $99.57 a barrel, while US West Texas Intermediate (WTI) crude gained 46 cents to trade at $96.30 a barrel.
US oil inventories rose more than expected despite expectations of the tightness in markets. According to the Energy Information Administration (EIA), US commercial crude stocks increased by 3.3 million barrels versus expectations for a modest draw in stocks.
Also, US consumer prices accelerated to 9.1 per cent in June as gasoline and food costs remained elevated, cementing the case for the Federal Reserve to hike interest rates by 75 basis points later this month.
The US Dollar index hit a 20-year-high on Wednesday, which makes oil purchases more expensive for non-U.S. buyers.
Renewed COVID-19 curbs in China have also weighed on the market, as Chinese imports of crude dropped to their lowest in four years in June.
Shanghai and some other Chinese cities started enacting fresh COVID-19 restrictions ranging from business shutdowns to broader lockdowns in an effort to control the spread of the latest coronavirus variant.
Due to these developments, demand issues are catching up to high prices.
Global oil demand is expected to rise by 1.7 million barrels per day this year compared to 2022, the International Energy Agency (IEA) said on Wednesday.
The agency revised downward its demand growth estimate by 100,000 barrels per day on the back of high prices weighing on consumption.
“Higher prices and a deteriorating economic environment have started to take their toll on oil demand, but strong power generation use and a recovery in China are providing a partial offset,” the agency said in its closely-watched Oil Market Report (OMR) published yesterday.
Total global oil demand is expected to average 99.2 million barrels per day in 2022, up by 1.7 million barrels per day compared to 2021, the IEA said in its July forecast.
As an embargo on Russian oil from the European Union is set to come into full force at the end of the year, the oil market may tighten once again.
Also, with readily available spare capacity running low in both the upstream and downstream, it may be up to demand-side measures to bring down consumption and fuel costs, said IEA.
