Oil prices surged by over $1 on Wednesday, with the market’s attention firmly fixed on supply constraints leading into the winter months and the prospect of a “soft landing” for the U.S. economy.
Brent crude futures (CCOM:OILBRENT) advanced to $95, marking a gain of $1.14 and reaching $95.10 per barrel. Simultaneously, U.S. West Texas Intermediate crude futures (CCOM:OILCRUDE) saw an increase of $1.35, reaching $91.74.
Market sentiment remained preoccupied with concerns regarding the declining U.S. crude inventories in Cushing, Oklahoma, a critical storage facility, which could potentially fall below operational thresholds. This would further exacerbate supply constraints already caused by production cuts implemented by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, contributing to the ongoing rise in crude oil prices.
These concerns persisted despite industry data from Tuesday indicating that U.S. crude oil stockpiles had risen by approximately 1.6 million barrels last week, contrary to analysts’ expectations of a roughly 300,000-barrel decrease.
Leon Li, an analyst at CMC Markets, noted, “Oil prices are overall relatively strong amid the current tightening of supply. Economic data from countries in Europe and the United States have recently weakened … Oil prices in October may show a volatile trend as a whole. It is unlikely to exceed $100 in the short term, but it is expected to remain robust.”
U.S. government data on oil inventories is expected at 10:30 a.m.
Furthermore, Russia had implemented a temporary ban on gasoline and diesel exports to most countries last week to stabilize the domestic market. Although it later eased these restrictions, they could still exert upward pressure on crude oil demand from refineries.
Meanwhile, Minneapolis Federal Reserve Bank President Neel Kashkari remarked on Tuesday that a “soft landing” for the U.S. economy is more probable than not. However, he also suggested a 40% likelihood that the Federal Reserve would need to implement substantial interest rate hikes to combat inflation.
In addition, a Reuters poll of economists indicated that the Bank of England had concluded its cycle of tightening monetary policy, and it is likely to maintain the Bank Rate at 5.25% until at least July. Nevertheless, a minority of economists suggested that the Bank might raise rates again later this year. Elevated interest rates tend to raise borrowing costs, potentially dampening economic growth and reducing oil demand.