The price increase came even though the market expects more interest rate hikes
Pump jacks in Kern County, California. — AFP
Oil prices climbed about 2 per cent to a three-month high on Monday on tightening supply, rising US gasoline demand, hopes for Chinese stimulus measures and technical buying.
In addition, traders noted prices gained due to uncertainty in global markets related to Russia’s bombing of Ukrainian grain export facilities and to North Korea firing two ballistic missiles into the sea hours after a US nuclear-powered submarine arrived in South Korea.
The price increase came even though the market expects more interest rate hikes from US and European central banks. Higher interest rates increase borrowing costs and can slow economic growth and reduce oil demand.
Brent futures rose $1.62, or 2.0 per cent, to $82.69 a barrel by 1:53 p.m. EDT (1753 GMT), while US West Texas Intermediate (WTI) crude rose $1.74, or 2.3 per cent, to $78.81.
That puts Brent on track for its highest close since April 24 and WTI on track for its highest close since April 19, and pushed both contracts into technically overbought territory.
In addition, both benchmarks were on track to close above their 200-day moving averages, which have been key points of technical resistance since August 2022.
Bob Yawger, director of energy futures at Mizuho bank, said a close above the 200-day moving average “generally stops out the (speculative) shorts (and) attracts traders looking for new entry points.”
Both crude benchmarks have already risen for four weeks in a row with supplies expected to tighten due to cuts from the Organization of the Petroleum Exporting Countries (Opec) and allies like Russia, a group known as Opec+.
Oil’s rise has reflected “tightening conditions as Saudi oil output cuts impact the market ... even as summer demand has been somewhat stronger for gasoline and jet fuel”, Citi Research said in a note.
Strong demand boosted US gasoline futures to their highest since October 2022.
In the euro zone, business activity shrank much more than expected in July as demand in the bloc’s dominant services industry declined while factory output fell at the fastest pace since Covid-19 first took hold, a survey showed.
In the United States, business activity slowed to a five-month low in July, dragged down by decelerating service-sector growth, closely watched survey data showed, but falling input prices and slower hiring indicate the Federal Reserve could be making progress on important fronts in its bid to reduce inflation.
Investors have priced in quarter-point hikes from the Fed and European Central Bank (ECB) this week, so the focus will be on what Fed Chair Jerome Powell and ECB President Christine Lagarde say about future rate increases.
A majority of economists polled by Reuters still expect this will be the last increase of the current US tightening cycle, after data this month showed signs of disinflation, eliminating the need for the Fed to lift rates further.
In China, the world’s second-largest economy and second-biggest oil consumer, leaders pledged to step up policy support for the economy amid a tortuous post-COVID recovery, focusing on boosting domestic demand, signalling more stimulus steps.
Analysts at Deutsche Bank said demand for oil in China “is now surpassing expectations”, which “helps to add confidence in the ability of China to make up (two-thirds) of oil demand growth this year.”