Crude oil prices were set for their second consecutive week of gains today as supply concerns began to seep through a preoccupation with demand.
The latest inventory data from the United States helped alleviate concerns about demand, according to Reuters, as the EIA reported a larger-than-expected draw. Even though it was much slimmer than the inventory draw estimated for the previous week, which came in at 9.6 million barrels.
Yet last week’s inventory draw was the third in a row, strengthening the impression of a stronger demand environment in the world’s largest consumer of crude oil.
Meanwhile, minutes from the Fed’s meeting from last month revealed that the U.S. central bank is still determined to continue raising interest rates until it is satisfied with inflation levels. That’s bearish for oil but it seems supply news is countering the effect for the moment.
In related news, the FT reported that U.S. borrowing costs had jumped to the highest in 16 years as employment strengthened further. That, the FT noted, would likely strengthen the Fed’s resolve for more rate hikes.
“The global economy will break eventually, and the higher rates go, the bigger the cracks will be,” an Allianz bond fund portfolio manager warned.
Meanwhile in oil, “The crude demand outlook is starting to look better as we enter peak summer travel in the U.S., and as the Saudis were able to raise prices to Europe and Asia,” OANDA analyst Edward Moya told Reuters.
The outlook for supply is helping support a less bearish view on oil prices, after the news about Saudi Arabia’s production cut extension and Russia’s planned export cuts began to sink in.
The two measures would take 1.5 million bpd off the market in August at a time when growth in production in the U.S. is slowing down and about to reverse later in the year, at least according to Reuters.