Oil extends gains as risk appetite improves, U.S. inventories fall

In Sakir, south of Manama, an oil pump machine is seen on October 11, 2014, as it burns unusable gases. REUTERS/Hamad I Mohammed

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LONDON, July 28 (Reuters) – Oil rose more than $2 a barrel on Thursday, extending gains from the previous session, buoyed by improved risk appetite among investors as lower crude oil inventories and a rebound in gasoline demand in the United States supported prices.

Brent crude futures for September were up $2.09, or 1.96%, to $108.71 a barrel at 1201 GMT, after gaining $2.22 on Wednesday.

US West Texas Intermediate Crude Oil (WTI) stood at $99.62 a barrel, up $2.36 or 2.43%, after rising $2.28 in the previous session.

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“Yesterday’s stock rally following the Fed’s rate hike and the resulting easing of the dollar helped get oil prices back on track,” said Tamas Varga, an analyst at PVM Oil Associates.

“Weekly EIA statistics were also supportive. There were draws in key categories and products delivered.”

The US Federal Reserve raised its benchmark overnight interest rate by three-quarters of a percentage point, in line with expectations, to cool inflation, while the dollar fell on hopes of a slower walking path. read more

A weaker dollar makes oil, priced in the currency, cheaper for buyers in other countries to buy.

US crude oil inventories fell 4.5 million barrels last week, against expectations of a 1 million barrel drop, while US gasoline demand rebounded 8.5% week over week, data from the Energy Information Administration (EIA).

“The US consolidated its position as the world’s largest oil exporter,” Citi analysts said in a note, as combined gross exports of crude oil and refined products hit a record 10.9 million barrels per day.

US crude oil exports hit a record 4.5 million barrels per day as WTI traded at a sharp discount on Brent. In a bullish signal, however, US crude oil production growth could stall due to a lack of fracking equipment and crews, as well as capital constraints, executives said this week. read more

Prices found further support from the struggle for energy supplies between the West and Russia. The Group of the Seven Richest Economies aims to trigger a price cap mechanism for Russia’s oil exports by Dec. 5, a senior G7 official said Wednesday. read more

Meanwhile, Russia has reduced gas supply via Nord Stream 1, the main gas link to Europe, to just 20% of capacity. That could lead to a switch from gas to crude oil and push the oil price up in the near term, analysts say.

“We are increasing our aggregate estimates for additional oil demand from gas to oil from October 2022 to March 2023 by 700,000 bpd,” JP Morgan analysts said in a note.

However, this could be offset by normalizing Libyan supplies, leading to a broadly balanced global oil market in the fourth quarter, followed by a stock build of 1 million barrels per day in the first quarter of 2023, it added.

“We keep our price forecast unchanged and see the global oil price in the low $100 in 2H22 and high at $90 in 2023,” the bank said.

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Additional reporting by Florence Tan in Singapore; Editing by Kirsten Donovan

Our Standards: The Thomson Reuters Trust Principles.

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