By Ambar Warrick
Investing.com-- Oil prices retained recent gains on Thursday as optimism over an unexpected draw in U.S. inventories offset plans by the Biden administration to release more oil from strategic reserves, although fears of sluggish global demand and a strong dollar kept sentiment cautious.
Oil bulls were encouraged by data on Wednesday that showed U.S. crude oil inventories unexpectedly shrank in the week to October 14. The reading shows that crude consumption in the world’s largest economy remained steady despite pressure from rising inflation and interest rates.
Crude prices rallied on Wednesday, even as U.S. President Joe Biden announced the sale of 15 million barrels of oil from the country’s Strategic Petroleum Reserve (SPR) and threatened more such sales to bring down gasoline prices.
Wednesday’s sale translates to about 500,000 barrels per day of supply when delivery occurs, compared to a 2 million barrel per day production cut approved by the Organization of Petroleum Exporting Countries and allies (OPEC+) earlier this month. Markets bet that a recent OPEC+ supply cut will largely offset plans by the U.S. to increase supply
On Thursday, London-traded Brent Oil Futures were flat at $92.30 a barrel, while U.S. West Texas Intermediate crude futures rose 0.3% to $84.80 a barrel by 21:27 ET (01:27 GMT). Both contracts rallied over 2% on Wednesday.
Markets also expect crude supply to tighten further this year as the West imposes more curbs on Russia oil exports.
But on the demand side, concerns over Chinese appetite for crude persisted after President Xi Jinping earlier this week reiterated Beijing’s commitment to maintaining its zero-COVID policy. The move raises the possibility of more COVID-related lockdowns in the world’s largest oil importer and paints an uncertain future for crude demand.
Strength in the dollar, following an overnight spike in Treasury yields also limited any gains in oil prices, as markets feared more interest rate hikes by the Federal Reserve. A stronger dollar also makes oil shipments more expensive for importers, weighing on demand.
Fears of slowing economic growth have weighed heavily on oil prices this year, dragging them off annual highs as markets feared demand destruction from a potential recession. These concerns are expected to persist in the near-term, especially as global interest rates rise further.