Oil Rallies Amid Energy Security Concerns And Falling Stockpiles
Oil erased earlier losses amid volatility in the US dollar and a focus on whether producer nations might curb output following a price rout.
(Bloomberg) -- Oil rose as mounting concerns over Europe’s energy security and declining US inventories underscored risks to supplies.
West Texas Intermediate rose as much as 4.2% to trade above $81 a barrel. US crude stockpiles fell last week for the first time in a month, according to government data, while fuel stockpiles along the East and West Coast slipped precariously. Meanwhile, leaks in three Nord Stream pipelines are widely suspected to be the result of sabotage, prompting fears of an escalation in energy conflict between Russia and Europe.
“The damage to Nord Stream is very concerning both from a supply issue and a political issue in that it assures supply from Russia is not reliable,” said Dennis Kissler, senior vice president at Bok Financial Securities. “It raises concerns that all energy prices are vulnerable to price spikes if we see an early start to a harsh winter.”
Adding to bullish sentiment, crude inventories fell 215,000 barrels last week, the US Energy Information Administration reported. West Coast gasoline stockpiles fell to their lowest in 10 years, while New England’s distillate stocks, which include diesel and heating oil, fell to an all-time low for this time of year.
Oil futures markets have been volatile for months amid lackluster liquidity. Prices stand almost 40% lower than their peak earlier this year amid a rising sense of certainty that central bank efforts around the world to contain inflation will lead to an economic slowdown.
Nonetheless, bullish factors remain among geopolitical uncertainty. Russia, which has to discount its barrels because of Western sanctions, is pushing OPEC and its allies to cut their collective output by 1 million barrels a day when the producer nations meet next week, Reuters reported Tuesday. A production cut would further tighten supplies and could rally prices.
The European Union also announced a new round of sanctions Wednesday, which will include additional import bans on Russian products and prohibit sales of key technologies to the country. The measures will include a price cap on Russian oil exports.
Some of China’s top refiners are expecting a better economy in the winter, a bullish signal for oil. Demand in the country, which is the world’s biggest crude importer, has remained weak for years because of its Covid Zero policy.
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