Oil Prices Defy Fed Reserve Hike And Rise On Evidence Of Resilient Demand

But analysts are still worried about demand destruction: File Image/Pixabay

Despite the U.S. Federal Reserve enacting its fourth interest rate hike of the year – a move that critics say will kill demand in addition to curbing inflation – oil prices on Wednesday rose as U.S. consumers defied expectations and caused another decline in domestic inventories.

Brent settled up $1.51, or 1.6 percent, to $96.16 per barrel while West Texas Intermediate settled up $1.63, or 1.8 percent, to $90 per barrel.

U.S. crude oil stocks fell about 3.1 million barrels on the week, according to data from Washington: plus, gasoline inventories and distillates rose only marginally, and analysts point out that these stocks will likely deplete as the heating season arrives.

Rebecca Babin, senior energy trader at CIBC Private Wealth US, said of Wednesday's trading behaviour, "There's definitely a lot of focus on supply/demand fundamentals and inventories….and about when the Russia sanctions kick in."

Andrew Lipow, president of Lipow Oil Associates, added, "Every week that goes by, the U.S. is drawing hydrocarbon inventories, and that leads to the question of where does the industry turn when there are no more supplies from strategic petroleum reserve releases."

Still, for every analytical worry about depleted stocks there was an equal amount of hand wringing over demand destruction coming from various sources, not the least of which was China: Thomas Westwater, analyst at DailyFX, noted that "Chinese Covid lockdowns and rising interest rates weigh on the commodity's demand outlook," and he went on to call China's manufacturing sector contracting in October "the latest fallout from the country's 'Zero-Covid' policy, which some hoped would ease after China's National Congress."

Oilprice.com summarized prevailing analytical sentiment by stating that "the oil market will remain an extremely uncertain place for the observable future or at least until those countries that are expected to slip into recession do so."

In other oil related news on Wednesday, both Alex Pourbaix, CEO of Cenovus Energy Inc., and Brad Corson, CEO of Imperial Oil Ltd., said as Canadian heavy oil's discount to the U.S. benchmark widened that weak prices may linger into next year.

Western Canadian Select's discount in Alberta to West Texas Intermediate widened 25 cents to $30 per barrel on Wednesday, and unlike past instances the price is now weak due to U.S. releases of sour crude from government reserves, high natural gas prices, and refinery disruptions: "I would view it as a temporary issue that could persist into 2023," Pourbaix said.