Oil gave up most of its earlier gains on Wednesday as worries over further interest rate hikes and slowing demand offset support from an industry report showing a larger-than-expected drop in U.S. crude inventories.
Benchmark Brent crude prices are down more than 15% this year as rising interest rates hit investor appetite, while China’s economic recovery has faltered after several months of softer-than-expected consumption and other data.
At 1154 GMT, Brent was up 8 cents, or 0.1%, to $72.34 a barrel, while U.S. West Texas Intermediate (WTI) crude slipped 2 cents to $67.68.
”For now, the market remains stuck with demand concerns weighing,” said Ole Hansen, head of commodity strategy at Saxo Bank. ”OPEC production cuts have helped prevent a deeper setback.”
”Overall, the commodity sector, including crude oil, is suffering from risk adversity amid China growth worries and U.S. data strength pointing to higher rates,” he said.
Oil was up earlier in the session, finding support from American Petroleum Institute data showing U.S. crude inventories fell by about 2.4 million barrels. The Energy Information Administration’s official supply report is due out at 1430 GMT.
While outright prices were mixed, the discount of the prompt Brent contract to the next month has deepened, a structure called contango which indicates ample supply.
Higher interest rates can weigh on economic activity and oil demand. European Central Bank President Christine Lagarde said on Tuesday that stubbornly high inflation will require the bank to avoid declaring an end to rate hikes.
”The weakness is the combination of expectations of further rate hikes as suggested by the ECB president and ample physical supply as manifested in the weakening structure of the two major crude oil futures contracts,” said Tamas Varga of oil broker PVM.
Still, some analysts expect the market to tighten in the second half of 2023 partly due to ongoing OPEC+ supply cuts and Saudi Arabia’s voluntary reduction for July.
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