US Crude Inventories Draw, Cut in Russian Gas Boost Oil Prices

By Adedapo Adesanya

Oil prices settled higher by more than $2 on Wednesday as a report of lower crude inventories in the United States and cuts in Russian gas flows to Europe excited the markets.

Brent crude rose by $2.22 or 2.1 per cent to $107.82 a barrel while the US West Texas Intermediate (WTI) crude gained $2.28 or 2.4 per cent to settle at $98.67 per barrel.

The US Energy Information Administration (EIA) inventory data published showed that crude oil stockpiles in the world’s largest oil producer shrunk by 4.5 million barrels in the week ending July 22, in addition to the 5.6 million barrels that were released from the nation’s Strategic Petroleum Reserves (SPR).

Previously, the industry group – the American Petroleum Institute (API) said on Tuesday that crude stocks fell by 4 million barrels, four times the forecast decline.

Cuts in Russian gas flows to Europe also boosted prices as energy companies are set to receive lower volumes compared to previous times.

State-controlled Russian energy giant Gazprom said flows through its Nord Stream 1 pipeline would fall starting from Wednesday, adding it would cut supplies to Germany to just 20 per cent of the pipeline’s capacity.

Oil also continued to climb after the US Federal Reserve decided, as expected, to raise its benchmark overnight interest rate by three-quarters of a percentage point (75 basis points) in an effort to cool the most intense inflation since the 1980s.

This will be the second consecutive month that the rate was hiked after the US central bank on June 15, made its largest rate hike since 1994, raising rates by 75 basis points, with oil prices responding downwards slightly in the immediate aftermath.

Analysts noted that since the rate was hiked at the same level, it wouldn’t necessarily strengthen the Dollar, which would make dollar-denominated commodities cheaper for other currency holders.

Oil has soared in 2022, reaching a 14-year high of $139 a barrel in March after Russia’s invasion of Ukraine added to supply worries and as demand recovered from the pandemic.

Since then, concerns of economic slowdown and rising interest rates have weighed on prices, despite supply outages in Libya and Nigeria.