Oil prices settle higher amid supply concerns ahead of winter

An IPC Petroleum France oil pump is seen at sunset outside Soudron, near Reims, France, August 24, 2022. REUTERS/Pascal Rossignol/File photo

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NEW YORK, Sept 12 (Reuters) – Oil prices closed higher on Monday, shattering expectations of weaker demand as supply concerns mount ahead of winter.

Brent crude futures settled $1.16, or 1.3%, at $94.00 a barrel. US West Texas Intermediate crude rose 99 cents, or 1.1%, to $87.78.

US emergency oil stocks fell 8.4 million barrels to 434.1 million barrels in the week ending September 9, their lowest level since October 1984, according to data released Monday by the US Department of Energy (DOE).

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US President Joe Biden laid out a plan in March to release 1 million barrels a day for six months from the Strategic Petroleum Reserve to deal with high US fuel prices, which have contributed to the rise in inflation.

The Biden administration is weighing the need for more SPR releases after the current program ends in October, Energy Secretary Jennifer Granholm told Reuters last week.

Global oil supply is expected to tighten further when the European Union’s embargo on Russian oil goes into effect on December 5.

The G7 will implement a price cap on Russian oil to limit the country’s oil export earnings, seeking to punish Moscow for invading Ukraine, while taking steps to ensure oil can still flow to emerging nations. read more

However, the US Treasury warned that the cap could push US oil and gasoline prices higher this winter. [nL1N30I0BQ

The EU’s executive European Commission is due on Wednesday to unveil a package of measures to help power firms facing a liquidity crunch. read more

France, Britain and Germany on Saturday said they had “serious doubts” about Iran’s intentions to revive a nuclear deal. Failure to revive the 2015 deal would keep Iranian oil off the market and keep global supply tight. read more

In more bearish news for markets, China’s oil demand could contract for the first time in two decades this year as Beijing’s zero-COVID policy keeps people at home during holidays and reduces fuel consumption. read more

“The lingering presence of headwinds from China’s renewed virus restrictions and further moderation in global economic activities could still draw some reservations over a more sustained upside,” said Jun Rong Yeap, market strategist at IG.

U.S. domestic oil output is also set to rise in coming months. Oil output in the Permian Basin in Texas and New Mexico, the biggest U.S. shale oil basin, is due to rise 66,000 barrels per day (bpd) to a record 5.413 million bpd in October, the U.S. Energy Information Administration (EIA) said in its productivity report on Monday.

The European Central Bank and U.S. Federal Reserve, meanwhile, are prepared to increase interest rates further to tackle inflation, which could strengthen the U.S. currency and make dollar-denominated oil more expensive for investors.

“A strong dollar would serve as a reverse correlation to commodities priced in dollars, and would likely serve as a drag on upside gains in the energy market,” said Bob Yawger, director of energy futures at Mizuho.

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Reporting by Laura Sanicola in New York
Additional reporting by Noah Browning, Florence Tan and Jeslyn Lerh
Editing by Deepa Babington and Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

Laura Sanicola

Thomson Reuters

Reports on oil and energy, including refineries, markets and renewable fuels. Previously worked at Euromoney Institutional Investor and CNN.

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