Oil steadies after weekly loss amid interest rate concerns and rising crude supplies

Markets await minutes of US Federal Reserve's February policy meeting

A Mexican exploration oil rig in the Gulf of Mexico. AFP

Oil prices edged slightly higher on Monday after a sharp drop last week on rising crude supplies and prospects of further interest rate increases.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.53 per cent higher at $83.44 a barrel at 4.01pm UAE time.

West Texas Intermediate, the gauge that tracks US crude, was up 0.50 per cent at $76.72 a barrel.

Brent fell 3.9 per cent last week and WTI lost 4.2 per cent.

“Near-term anxiety over the strength of demand amid tighter monetary policy is weighing on oil even as major forecasting agencies continue to flag the risks to fundamentals in the second half of 2023,” Khatija Haque, head of research and chief economist at Emirates NBD, said in a note.

US economic data pointed to stubborn inflation in the world’s largest economy, making the case for larger interest rate increases by the Federal Reserve.

Earlier this month, the Fed raised interest rates by 25 basis points, the eighth rise since March last year. It indicated that there would be more increases to come.

The Fed’s target range now stands at 4.5 to 4.75 per cent — about 50 bps away from its end-of-year projection of 5.1 per cent.

Markets are awaiting the minutes of the Fed’s February policy meeting, due on Wednesday.

Futures fell more than 1 per cent last week after the US Department of Energy said it would sell 26 million barrels of crude from the strategic petroleum reserve.

A record 180 million barrels of oil were released from America’s emergency reserves last year after Russia’s invasion of Ukraine resulted in Brent crude closing in on a 14-year high of $140 a barrel.

US crude stocks jumped by 16.3 million barrels to 471.4 million barrels in the week that ended on February 10, their highest level since June 2021, the US Energy Information Administration said.

The large build was mainly due to an upwards “adjustment” of 1.97 million barrels per day to last week’s crude supplies, which can be seen as a “balancing item”, the EIA said in its weekly report.

Meanwhile, energy traders are waiting for more concrete signals of an economic recovery in China, the world's second-largest economy and top crude importer.

China, which is reopening its economy after following a zero-Covid policy for nearly three years, is expected to be the biggest driver of oil markets this year, according to analysts and industry bodies.

The International Energy Agency expects 2023 global oil demand to grow by 2 million bpd, with China set to consume 900,000 bpd.

Last week, Opec raised its oil demand forecast by 100,000 bpd on expectations of an economic rebound there.