Home Business Oil Prices Soar to 3-Month Highs Amid Supply Squeeze and Economic Boost!

Oil Prices Soar to 3-Month Highs Amid Supply Squeeze and Economic Boost!

by Editorial Desk
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Oil Prices Surge to Three-Month Highs on Supply Constraints and Economic Support

In an impressive rally, oil prices reached a three-month high on Tuesday, buoyed by clear indications of tightened supplies and reassuring commitments from Chinese authorities to bolster their economy – the second-largest in the world.

Brent futures saw a significant uptick of 90 cents, settling at $83.64 per barrel, hitting the peak of $83.87 earlier in the day, the highest since April 19.

Similarly, U.S. West Texas Intermediate (WTI) crude experienced an 89 cent increase, reaching $79.63. In earlier trading, it reached as high as $79.90 per barrel, also marking the highest level since April 19. This surge marked the fourth consecutive weekly gain for crude benchmarks, and the market expects supplies to tighten further due to output cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies.

Notably, earlier-loading Brent contracts are commanding higher prices than later loadings, a situation referred to as “backwardation.” This pricing structure suggests that traders anticipate a scarcity in supply, with the six-month spread near a 2-1/2-month high.

Market analysts are taking note of the trend of tightening oil supplies, leading some to reconsider their skepticism about the expected decline in demand. As Phil Flynn, an analyst from Price Futures Group, pointed out, the market is growing increasingly concerned about supply constraints, while the projected drop in demand isn’t materializing as expected.

China, being the world’s second-largest oil consumer, has reassured the market with its commitment to reinforce economic policy support, further boosting investor confidence.

Despite these positive developments, there are still some factors limiting gains. In the euro zone, business activity shrank more than anticipated in July, as reported by a survey. Likewise, business activity in the United States slowed to a five-month low in July, as per a closely monitored survey. However, the data also indicated falling input prices and slower hiring, signaling potential progress in the Federal Reserve’s efforts to curb inflation. It’s expected that both the Federal Reserve and the European Central Bank will implement 25-basis-point rate hikes this week.

In terms of inventory, U.S. crude oil and distillate inventories rose last week, while gasoline stockpiles declined, according to insider sources citing figures from the American Petroleum Institute.

Specifically, crude stocks rose by approximately 1.32 million barrels in the week ending on July 21, according to anonymous sources. Gasoline inventories fell by about 1.04 million barrels, while distillate inventories saw an increase of around 1.61 million barrels.

Looking ahead, U.S. government data on inventories is expected to be released on Wednesday.

In a more bearish development, sources report that a 110,000 barrel-per-day unit at a significant U.S. refinery in Baton Rouge (C}RO7309414611) will be shut down for up to four weeks.

The current state of the oil market appears to be driven by a mix of supply constraints and economic support from key players like China. As we eagerly await the latest government data on inventories, market participants are keeping a close eye on developments and anticipating further price movements in the near future.

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