Oil holds gains as US stockpile draw
Oil held the bulk of a three-day gain as traders assessed a big draw in US stockpiles and persistent tensions over the US debt-ceiling impasse.
West Texas Intermediate traded above US$74 a barrel after rallying by nearly 4 percent over the previous three days. US nationwide crude inventories plunged by more than 12 million barrels last week, the biggest drop in six months. That bullish signal followed a stark warning from Saudi Arabian Energy Minister Prince Abdulaziz bin Salman that crude market speculators should “watch out.”
In financial and commodity markets, there’s sustained concern about the fight over raising the US debt limit, and the potential consequences for the global economy and energy demand. Fitch Ratings has warned it may downgrade US credit ratings to reflect the worsening partisanship preventing a deal.
Crude is still down more than 7 percent for the year as lackluster Chinese growth and tighter US monetary policy combined to subdue demand. Federal Reserve officials are leaning toward pausing rate hikes in June, though they also signalled they’re not yet ready to end their fight against inflation.
“The outlook for the oil market appears poor for now: macroeconomic drivers like the US debt-deal negotiations and tighter US monetary policy are weighing” on prices, said Sean Lim, an oil and gas analyst at RHB Investment Bank in Kuala Lumpur. Still, as China’s recovery picks up steam, prices should gain over the second half, he said.
In the Middle East, a bulk carrier that had run aground in the Suez Canal, risking fresh disruption to flows through the vital trade route, was refloated. There have been several groundings in the canal this year, the most recent in March, which caused no delay to traffic in the waterway. Traders are also looking ahead to a meeting of the Organization of Petroleum Exporting Countries and allies early next month. Despite the threat against short-sellers from Riyadh this week, many traders and analysts are still expecting Saudi Arabia and its partners to keep output levels unchanged. -Bloomberg