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Oil Recovers Slightly as Robust U.S. Demand Offsets OPEC+ Uncertainty

Published 08/31/2022, 07:59 PM
Updated 08/31/2022, 08:12 PM
© Reuters.

By Ambar Warrick Oil prices rose slightly on Thursday, recovering from recent losses as data showing steady U.S. crude demand offset uncertainty over potential production cuts by the OPEC+.

London-traded Brent oil futures rose 0.5% to $95.31 a barrel by 20:06 ET (00:06 GMT), while U.S. West Texas Intermediate futures fell 0.4% to $89.22 a barrel. Both contracts slumped nearly 3% on Wednesday, and are trading between $4 to $7 lower for the week.

Data from the U.S. Energy Information Administration showed a bigger-than-expected drawdown in crude inventories last week, while gasoline inventories fell for a fourth straight week. The U.S. has also been steadily drawing from its Strategic Petroleum Reserve to meet local and export demand.

Gasoline demand is expected to recover further on the back of weaker wholesale prices, which recently hit levels last seen before the Russia-Ukraine conflict.

But while gasoline demand is recovering in the U.S., sluggish economic growth in major importers, particularly in Asia, has cast doubts over sustained crude consumption. COVID lockdowns in China, the world's largest crude importer, have severely dented exports to the country this year.

On the supply front, a Reuters report showed that members of the Organization of Petroleum Exporting Countries and allies (OPEC+) were yet to begin discussion over any potential supply cuts, despite its leader Saudi Arabia recently flagging potential production curbs to support prices.

The organization also sees rising inflation and interest rates casting major doubts over steady demand for crude. Skyrocketing inflation rates across the globe severely dented crude demand in major economies this year.

Investors are now awaiting more cues from the OPEC+ meeting on Sept. 5. The OPEC+ still reduced its 2022 oil surplus estimate, but pinned the move on weaker production, rather than strong demand.

Adding more pressure to prices, the United States on Wednesday engaged in talks with Israel over the Iran Nuclear Deal, which Jerusalem is strongly opposed to. Tehran is seeking stronger guarantees from Washington over signing an agreement, particularly that the International Atomic Energy Agency close its probes into undeclared sites in the country.

News of progress in the deal had battered oil prices through August.

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