Oil prices rise for third day as tighter market offsets demand risks

Oil rose for a third day on signs the physical market is tightening offset growing demand risks in China and the US.
 

Global benchmark Brent traded above $85 a barrel and is up more than 2 per cent since last Wednesday’s close. The most immediate parts of the oil futures curve are pointing to tight supplies as curbs from OPEC+ linchpins Russia and Saudi Arabia help propel crude prices higher.
 

There was also some support from wider markets, with European equities trading higher and US futures also pointing to a firmer open on Monday.  Economic malaise in China — ranging from downbeat consumers to struggling exports — and stubbornly persistent inflation risks in the US saw oil fall last week, bucking a recent strong run. Chinese banks made a smaller-than-expected cut to their benchmark lending rate Monday and avoided trimming the reference rate for mortgages, despite the central bank putting pressure on lenders to boost loans. 
 

Meanwhile, some refined products such as diesel — the workhorse fuel of the global economy — have started pricing in scarcity this winter, boosting their premium to the oil from which they are made. Gasoline futures in New York have risen by 15 per cent this year, also outpacing crude. 

“The Chinese growth outlook is causing demand concerns while the crude oil market, including various product markets, remains exceptionally tight,” said Arne Lohmann Rasmusen, head of research at A/S Global Risk Management. “The increased backwardation indicates that the spot market is tight.” 

The annual Jackson Hole symposium in Wyoming, which features speakers including Federal Reserve Chair Jerome Powell, may provide clues on the direction of interest rates. More increases in borrowing costs may be coming in the US after minutes of the Fed’s July meeting showed officials remained concerned about the inflationary threat.