Oil continued to hold on to a two day gain, driven by reported drawdowns in US stockpiles which managed to counter fears of a global economic slowdown.
February delivery of West Texas Intermediate was trading above $76 per barrel, having gained over 2% in the first two trading sessions of the week amid reduced liquidity. Adding to the sentiment, US crude inventories were down by 3.1 million barrels last week according to sources familiar with data from the American Petroleum Institute.
Governments were also alarmed to learn seaborne shipments of Russian crude collapsed over the first week the Russian oil price cap agreed upon by the G7 and EU went into effect. The cap was supposed to slash Russian oil revenues without disrupting supply, and potentially increasing energy costs, something which could exacerbate global inflation and further weigh down the global economy.
At the same time, in North America TC Energy announced the keystone pipeline would take a week longer than anticipated to return to operations following a leak which spilled 14,000 gallons of Canadian crude into a river in Kansas.
Even with the gains, crude is still on track to suffer its first back to back quarterly losses since 2019, as central banks continue to tighten the monetary supply, despite risks of tipping the US and European Union into recessions.
However traders are taking hope as China appears to be backing away from the strict “zero-Covid” policies which have hampered the reopening of the world’s second largest economy. Meanwhile Saudi Arabia has warned that OPEC and its allies intend to remain pro-active and pre-emptive in managing the global oil market and supporting prices to balance demand.
Vandana Hari, founder of Vanda Insights observed, “It’s a holding pattern for crude, which is not surprising, going into the year-end holiday season with thin liquidity. The consistent theme remains growing global economic worries.”
Oil’s Tuesday gain was also aided by the Bank of Japan’s sudden hawkish shift, which triggered a drop in the dollar. On Wednesday the Bloomberg Dollar Spot Index continued to remain lower, which caused commodities priced in dollars to appear more attractive.
