©Reuters. Pattern of oil barrels is seen in front of the rising stock graph in this illustration, July 24, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
By Emily Chow and Jeslyn Lerh
SINGAPORE (Reuters) – Oil prices rebounded on Thursday as falling gasoline inventories provided support despite signs that the U.S. Federal Reserve may keep interest rates higher for longer.
May futures rose 55 cents, or 0.6%, to $86.50 a barrel by 4am GMT, after falling 1.6% on Wednesday.
U.S. West Texas Intermediate May futures rose 47 cents, or 0.6%, to $81.74 a barrel, after sliding about 1.8% in the previous session.
Crude inventories in the United States, the world’s largest oil consumer, fell for a second week, the US Energy Information Administration (EIA) reported on Wednesday.
Stockpiles unexpectedly fell by 2 million barrels to 445 million barrels in the week ended March 15, compared with analysts’ expectations in a Reuters poll for a rise of 13,000 barrels. [EIA/S]
“It appears the bullish mantra is still intact, with yet another unexpected drop in US crude inventories last week as market participants continue to price in the risks of further supply disruption on the Russia-Ukraine front, he said Yeap Jun Rong, market strategist at IG.
Inventories fell while exports increased and refineries continued to increase activity. Gasoline inventories fell for a seventh week, falling 3.3 million barrels to 230.8 million, suggesting continued strong fuel demand.
Oil refinery operations increased by 127,000 barrels per day and utilization rates increased.
The inventory numbers gave some support to the market after prices fell lower a day earlier due to mixed outlooks from Fed policymakers.
While the US central bank kept interest rates in the 5.25% to 5.50% range on Wednesday, policymakers barely held on to the prospect of three rate cuts this year, suggesting that financing costs could remain higher for longer.
Higher rates over a longer period could mean reduced economic growth that would affect future fuel demand.
But ongoing concerns about how Ukrainian attacks on Russian refineries could impact global oil supplies are also supporting prices.
“The market remains cautious of current supply-side problems. Ukrainian drone attacks that destroyed 12% of Russia’s total oil processing capacity will likely tighten the market due to ongoing cuts by the OPEC,” ANZ Research said in a note, referring to the Organization of the Petroleum Exporting Countries.
Ukraine has stepped up attacks on Russian oil infrastructure with at least seven refineries targeted by drones this month, in a war that has lasted more than two years. According to Reuters calculations, the attacks shut down 7%, or about 370,500 barrels per day, of Russia’s refining capacity.
Analysts say prolonged disruptions could force Russian producers to reduce supply if they are unable to export crude oil and face storage constraints.