West Texas Intermediate futures climbed to trade near $117 a barrel earlier on Thursday. The Fed raised interest rates by 75 basis points as the central bank seeks to combat surging inflation. US crude production rose to 12 million barrels a day last week, the first time at that level since early 2020, according to data from the Energy Information Administration.
Crude is up more than 50% this year following a tightening of energy markets as an economic rebound coincided with upended trade flows after Russia’s invasion of Ukraine. Global supply will struggle to meet rising demand in 2023, the International Energy Agency said in a monthly report on Wednesday.
Russia’s war in Ukraine has fanned inflation worldwide, with US retail gasoline recently topping $5 a gallon. A Covid-19 resurgence across China has weighed on demand and capped further gains in oil prices but the world’s biggest crude importer is seeking to exit from strict virus restrictions. Mass testing drives in Shanghai signal that the recovery will be bumpy, however.
“The rate hikes coming up triggered quite some profit taking on long positions,” said Hans van Cleef, senior energy economist at ABN Amro. “At the same time, downside was limited as the tight market conditions added a floor to the prices.”
US crude inventories expanded for a second week, while supplies at the key storage hub at Cushing dropped, according to the EIA. Gasoline demand dipped last week but still remains above 9 million barrels a day.
Brent’s nearest futures contract was trading around $3 above the next month, a premium that indicates scarce supply of the crudes that underpin the global benchmark, including those from the North Sea.