(LONDON) Oil prices rose on Wednesday, benefiting from the weakness of the dollar and the return of investor risk appetite, against the backdrop of limited supply from OPEC while demand remains resilient.
By 6:25 a.m. EST, a barrel of Brent North Sea oil, for October delivery, gained 0.73% to $86.80.
Its American equivalent, a barrel of West Texas Intermediate (WTI), for delivery in September, took 0.89% to 83.66 dollars.
The two global crude benchmarks were thus moving at their highest level in nearly four months “due to OPEC (Organization of the Petroleum Exporting Countries) production cuts and signs of improving demand”, Energi Danmark analysts say.
The production of the OPEC group (OPEC and its allies) in fact reached its lowest level in nearly two years in July, according to a Platts survey by S
Saudi Arabia announced last week the extension of its voluntary production cuts of one million barrels per day until September. Russia immediately disclosed a reduction in its oil exports of 300,000 barrels per day.
Oil prices were also benefiting from the return of investors’ risk appetite and the weakness of the dollar, after an official of the United States Federal Reserve estimated on Tuesday that the institution’s rates could remain stable during the next meeting in September.
Oil purchases, denominated in dollars, are indeed more attractive for investors using foreign currencies, as the depreciation of the greenback increases their purchasing power.
However, “current concerns about the state of the global economy still loom over the market,” analysts at Energi Danmark said.
After the publication on Tuesday of a fall in Chinese imports and exports in July, the markets cashed on Wednesday the announcement of a drop in the consumer price index in China, indicating the country’s entry into deflation.
Apparently good news for purchasing power, deflation is on the contrary a threat to the economy, because instead of spending, consumers are tempted to postpone their purchases in the hope of more price cuts.
Investors are also awaiting the release of the U.S. Commercial Weekly Inventory Statement from the U.S. Energy Information Agency (EIA) for the week ended August 4.
The industry federation, the American Petroleum Institute (API), estimated on Tuesday evening that crude inventories rose by around 4.07 million barrels last week, but those of gasoline fell by approximately 413,000 barrels. However, API data is considered less reliable than EIA data.
Analysts are expecting a 2.3 million barrel increase in commercial crude reserves, and a 200,000 barrel drop in gasoline, according to the median consensus compiled by Bloomberg.