Oil Rebounds On Notion That Crop Shortages Will Boost Crude Demand

Traders were also bolstered by Fed remarks - even though more hikes are likely: File Image/Pixabay

The idea that global crop shortages could reduce biofuels blending and increase oil demand was said to be responsible for crude prices rising almost 2 percent on Wednesday.

After a U.S. crop report was released showing much of that country's crop being stressed by dry conditions as it neared key development phases, corn and soybean prices shot up to multi-month highs - and oil followed suit with West Texas Intermediate rising $1.34, or 1.9 percent, to settle at $72.53 per barrel.

Brent rose $1.22, or 1.6 percent, to settle at $77.12 per barrel.

Phil Flynn, senior market analyst at Price Futures Group Inc., remarked, "The grain markets are starting to wake up to the fact that inventories are low and it'll only be a matter of time before the oil market wakes up to that fact."

Oil also benefitted from Jerome Powell, chair of the U.S. Federal Reserve, suggesting that it is nearing its policy destination (even though he admitted that further rate hikes are likely.

However, the gains were capped by expectations that the Bank of England will raise interest rates by half a percentage point on Thursday, due to British inflation defying expectations of a slowdown.

Meanwhile, the source of crude trading discontent over the past few sessions – China – became the sudden focus yet again of analytical enthusiasm, after the country's Vice Premier was reported to have said that the economy is in good shape.

Additionally, it was revealed that refiners in China and Japan are on a buying spree, which in turn has caused oil prices in the Middle East to escalate.

Billy Helms, COO of EOG Resources Inc., said, "I think going forward, we're seeing the market continue to tighten and inventories continue to drawdown.

"Last year, you have to keep in mind the inventories rose largely on the back of the SPR releases and so without that the inventory will be a lot shorter than we are today."