Oil dips on weak demand fear, strong dollar
Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel
Oil prices drifted lower on Thursday as weak demand concerns over a large build in the crude inventory in the United States plus a strong dollar overtook potential supply disruption as the centre of focus.
The main Brent crude futures contract failed to hold onto its earlier gains and was down by 23 cents, or 0.2%, to $93.87 a barrel by 0636 GMT. U.S. West Texas Intermediate crude slipped by 9 cents, or 0.1%, to $88.39.
Data released by the Energy Information Administration showed U.S. crude and distillate inventories rose more than expected in the most recent week, suggesting weaker fuel demand and putting a lid on oil prices.
The stronger dollar is also a headwind for oil demand as dollar-denominated commodities, including crude oil, become more expensive for buyers holding other currencies. The dollar index gained 0.2% on Thursday near its recent peak.
Meanwhile, expectations of further U.S. interest rate hikes will continue to cloud the market and limit the rebound of oil prices, said analysts from Haitong Futures.
However, the increasing likelihood of a U.S. rail stoppage due to an ongoing labour dispute is adding support to the market. Three unions are negotiating for a new contract that could affect rail shipments, which are important for crude and product deliveries.
"The oil price has been pricing in a global recession, but even with flat global growth, the oil demand would remain quite strong relative to continued supply worries," said Clifford Bennett, chief economist at ACY Securities in a note.
The market has been focussing on the demand side of late but has probably priced too big a fall in actual demand while forgetting supply can still be somewhat problematic, said Bennett.
The International Energy Agency said Wednesday it expects widespread switching from gas to oil for heating purposes, saying the additional oil demand will average 700,000 barrels per day (bpd) in October 2022 to March 2023 - double the level of a year ago. That, along with overall expectations for weak supply growth, also helped boost the market.
For refineries, TotalEnergies SE cut production at its 238,000 barrel-per-day (bpd) Port Arthur, Texas, refinery because of the planned shutdown of two sulphur recovery units (SRUs) on Wednesday, said sources familiar with plant operations.
