Oil prices rise 2pc on low diesel stocks ahead of winter

Oil prices settled about 2% higher on Thursday, as low levels of diesel inventory ahead of winter triggered buying and reversed early losses that followed higher-than-expected stocks of crude and gasoline.

Brent crude futures for December delivery rose $2.12 to $94.57 a barrel, a 2.29% gain. U.S. crude rose $1.84, or 2.1%, to $89.11 per barrel.

Distillate stockpiles, which include diesel and heating oil, fell by 4.9 million barrels in the week ended Oct. 7 to 106.1 million barrels, the lowest since May, the U.S. Energy Information Administration said, versus expectations for a drop of 2 million barrels.

That prompted investors to shrug off a surprise 2 million build of gasoline stocks and a larger-than-expected near 10 million barrel rise in crude inventories.

“The most disturbing part of the (EIA) report is that distilling inventories are so far below average. Winter is coming,” said Phil Flynn, analyst at Price Futures Group in Chicago. “The market is looking at the big picture, as opposed to the short-term demand numbers that were impacted by the storm.”

Many investors remain concerned that rising inflation will dent fuel demand. The International Energy Agency warned that the global economy may go into recession.

U.S consumer prices increased more than expected last month and underlying inflation pressures continued to build, reinforcing expectations that the Federal Reserve will deliver a fourth 75-basis-point interest rate hike next month.

JPMorgan Chase & Co Chief Executive Officer Jamie Dimon warned that persistent and elevated inflation could spur interest rates to rise higher than 4.5%.

President Joe Biden said U.S. gasoline prices remain too high and he will speak next week about lowering the cost.

Also weighing on prices was a warning by the IEA that last week’s OPEC+ decision to cut supply by 2 million barrels per day (bpd) may lead to a global recession.

“The OPEC+ … plan … has derailed the growth trajectory of oil supply through the remainder of this year and next, with the resulting higher price levels exacerbating market volatility and heightening energy security concerns,” the IEA said.

The IEA downgraded its oil demand growth estimates slightly for this year to 1.9 million bpd and by 470,000 bpd in 2023 to 1.7 million bpd.

OPEC on Wednesday cut its outlook for demand growth this year by 460,000 bpd to 2.64 million bpd, citing the resurgence of China’s COVID-19 containment measures and high inflation. It lowered its 2023 oil demand forecast by 360,000 bpd to 2.34 million bpd.

“The prospect of sustained growth is deteriorating fast because of entrenched inflationary pressure, quantitative tightening, continuous hikes in borrowing costs, a strong dollar, and COVID-related constraints in the world’s second-biggest economy, China,” PVM analyst Tamas Varga said.

The energy market is under pressure as well from the U.S. dollar, which has rallied broadly, including against low-yielding currencies like the yen.