Oil settles higher amid low crude stocks, cautious economic outlook

OIL prices settled slightly higher on Thursday (Jul 20) on lower US crude inventories and strong crude imports by China, but a weaker demand outlook kept investors cautious.

September Brent futures climbed 18 US cents, or 0.2 per cent, to settle at US$79.64 a barrel. August US West Texas Intermediate (WTI) crude gained 28 US cents, or 0.4 per cent, to settle at US$75.63 a barrel.

The August WTI contract expires on Thursday. The more active September WTI crude settled 36 US cents higher at US$75.65.

Strong economic data, low employment and cooler inflation over a year since the Fed began one of its most aggressive rate hiking campaigns in history has supported US oil demand this year.

The US Federal Reserve is expected to raise its benchmark overnight interest rate by another 25 basis points to the 5.25-5.50 per cent range next week for a final time this rate-tightening cycle.

“Though the US economy is proving much stronger than expected in supporting the Dow Jones Industrial Average, this recent strength appears vulnerable especially if the Fed hikes rates by 25-points next week,” said John Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.

In the previous session, prices fell after data showed US inventories fell less than analysts expected.

“It wasn’t a huge draw that some in the market were hoping for, and that’s partially because petrol demand is lower than it could be for this time of year,” said Bob Yawger, director of energy futures at Mizuho in New York.

China’s economic recovery following its end to Covid-19 curbs has fallen short of expectations. Its oil imports year-on-year surged by nearly half in June, but at the same time stock levels rose to near an all-time high. Traders said China had been pragmatically buying discounted Russian crude.

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The Organization of the Petroleum Exporting Countries and the International Energy Agency have said China’s demand is expected to continue to rise in the second half of this year and remain the main driver of global growth.

China’s imports of crude oil from Russia hit an all-time high in June, Chinese government data showed on Thursday, even as discounts against international benchmarks narrowed.

Crude prices may struggle to find a clear direction given a mixed global demand outlook in the next few weeks, Citi analysts said in a note.

Demand is “a mixed picture with stronger petrol and jet fuel demand, but weaker petchems and diesel”, the analysts said.

Brent crude prices have broken through to a higher range this month, after being stuck at US$72-US$78 in May and June, the Citi analysts added, after Saudi output cuts and geopolitical risks supported demand. REUTERS