Oil prices steady after three-day rally amid demand concerns as Fed raises rates

The US central bank increased interest rates for the seventh time this year

Pump jacks operate in front of a drilling rig in an oilfield in Midland, Texas. Reuters

Oil prices were steady in late afternoon trading on Thursday as the possibility of further interest rate increases offset growing optimism over China’s demand outlook.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.4 per cent lower at $82.33 at 5.52pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 0.50 per cent at $76.89 a barrel.

"The outlook remains highly uncertain given the risks to Chinese demand as it exits zero Covid, the war in Ukraine and the impact of the G7 price cap," Craig Erlam, senior market analyst at Oanda, said.

Brent settled 2.5 per cent higher at $82.7 a barrel on Wednesday after the International Energy Agency (IEA) and Opec forecast a rebound in crude oil demand.

The IEA raised its global oil demand growth estimate for this year and the next on rising crude consumption in India, China and the Middle East.

The Paris-based agency now expects oil demand to grow by 1.7 million barrels per day in 2023, up from its previous estimate of 1.6 million bpd.

This year, oil demand will grow by 2.3 million bpd, a 140,000 bpd increase over the agency’s previous forecast.

Despite a “massive” build in US crude stocks, energy traders focused on the IEA market forecast and potential bullish catalysts such as China’s reopening and reduced output from Russia, said Edward Moya, senior market analyst at Oanda.

US crude stockpiles rose by more than 10 million barrels last week, the most since March 2021, according to data from the US Energy Information Administration (EIA).

“Crude prices pared gains after a hawkish FOMC [Federal Open Market Committee] decision sent the dollar skyrocketing higher.”

The US Federal Reserve on Wednesday raised its interest rates by 50 basis points in its continued efforts to fight inflation and indicated that more rate increases are to come next year.

This is the seventh interest rate rise that the Fed has issued this year after rates hovered at near zero per cent in March.

The latest announcement raises interest rates to a range of 4.25 per cent and 4.50 per cent, the highest level in 15 years.

Prices were also capped by the easing of crude supply concerns in the US.

A section of the 622,000 bpd Keystone pipeline, which links Canada and the US, was restarted after having been shut down last week due to a leak.

“The affected segment of the Keystone Pipeline System remains safely isolated as investigation, recovery, repair and remediation continues to advance,” said TC Energy, the pipeline’s operator.

On Tuesday, Opec stuck to its oil demand growth forecast for this year and 2023.

The oil-producer group expects the world economy to grow 2.8 per cent this year, up from its previous estimate of a 2.7 per cent growth.

The 2023 global economic growth forecast was unchanged at 2.5 per cent.

“Risks to global economic growth remain skewed downwards due to challenges including high inflation, monetary tightening by major central banks [and] high sovereign debt levels in many regions,” Opec said.

“Moreover, geopolitical risks and the pace of the Covid-19 pandemic during winter remain uncertain.”

While authorities in China, the world's biggest importer oil, eased their Covid-Zero restrictions — providing impetus for crude prices to rise as a result of higher demand — data released by the country's National Bureau of Statistics on Thursday showed that economic activity in the country slowed in November, with industrial output growth falling to 2.2 per cent, from 5 per cent in October.