Oil Hikes as US Inventory Drop Offsets Rate Hike Fears

Oil edged up on Wednesday after a larger-than-expected drop in US inventories suggested robust demand and helped offset worries over interest rate hikes. Crude stocks fell by about 2.4 million barrels, market sources said, citing data from industry group American Petroleum Institute (API). The Energy Information Administration's official supply report is due out at 1430 GMT. Brent crude was up 9 cents, or 0.1%, to US$72.35 a barrel at 0806 GMT, while West Texas Intermediate (WTI) US crude gained 26 cents, or 0.4%, to US$67.96. "This morning relief comes from last night's API stats," said Tamas Varga of oil broker PVM.

While outright prices gained on Wednesday, the discount of the prompt Brent contract to the next month has deepened, a structure called contango which indicates ample supply. Brent is down about 15% this year as rising interest rates hit investor appetite, while China's economic recovery has faltered after several months of softer-than-expected consumption and other data. European Central Bank President Christine Lagarde said on Tuesday stubbornly high inflation will require the bank to avoid declaring an end to rate hikes.

A rise in US consumer confidence in June also led to market concerns that the Federal Reserve would likely have to continue raising interest rates. Still, some analysts expect the market to tighten in the second half of 2023 partly due to ongoing OPEC+ supply cuts and Saudi Arabia's voluntary reduction for July. Saudi Aramco, the world's biggest oil company, said this week it believes market fundamentals remain "sound" for the second half of the year.