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Oil Rises as US Stockpiles Drop and Exports Climb to a Record

·3 min read

(Bloomberg) -- Oil rose after a government report showed demand for US crude rising globally amid a supply crunch and traders shrugged off the Federal Reserve’s decision to raise interest rates by 75 basis points.

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West Texas Intermediate rose 2.4% to settle at $97.26 a barrel, while gasoline futures climbed 2.2%. US crude stockpiles dropped the most since the end of May, falling by 4.52 million barrels last week, according to the Energy Information Administration. Adding to bullish sentiment, crude exports rose to a record as the spread between US- and London-traded futures widened with Europe scrambling to replace Russian barrels.

The Fed lifted interest rates by 75 basis points for a second straight month in the most aggressive measures to combat inflation since the early 1980s. Fears over an economic slowdown have whipsawed commodity markets as traders weigh a tight physical crude market against a weaker long-term outlook.

“The Fed’s decision was not a catalyst for the crude market but did remove some fears” of an even-higher rate hike, said Rebecca Babin, a senior energy trader at CIBC Private Wealth Management. “Crude trading recently has been highly correlated with macro headlines, but it should be noted that physical fundamentals improved meaningfully today and is the real driver of price action today.”

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Oil has jumped more than 25% since the start of the year, although the bulk of the gains triggered by Russia’s invasion of Ukraine have been reversed. The supermajor oil explorers such as Shell Plc and Exxon Mobil Corp. are scheduled to report second-quarter earnings this week that will show bumper profits after energy prices surged.

Adding to tight supply concerns, a power outage in Kazakhstan reduced electricity deliveries to a pumping station on a key crude pipeline, according to the nation’s Energy Ministry. The CPC pipeline is scheduled to handle about 1.4 million barrels a day in August, according to data compiled by Bloomberg

One of the most significant oil-market moves this week has been the widening gap between the West Texas Intermediate and Brent contracts. On Wednesday, the US benchmark was trading at more than $9 below Brent, after closing the day before with the biggest discount since 2019.

“The suppressed prices in the United States are being aided by the country’s strategic reserves,” said Harry Altham, EMEA & Asia Energy analyst for StoneX Group. “This spread widening also isn’t entirely based off of Brent’s September contract expiry as Brent’s 2-3 month calendar spread is also at its greatest premium to the WTI equivalent since May 2020.”

A group of Republican US senators that includes Marco Rubio of Florida introduced a bill that would sanction China’s purchases of oil from Russia, but the proposal faces long odds of getting a vote in the Democratic-controlled Senate. It also runs counter to Biden administration policy, which aims to keep Russian crude flowing while at the same time limiting Moscow’s energy revenue.

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