Oil Extends Rally As Supply Fears Build – Dollar Holds Strength

Oil on Thursday extended a fresh one-year high towards the $100-a-barrel mark.

Gatekeepers News reports that this increased the concerns about growing demand and waning supplies.

Meanwhile, bets on another US interest rate hike kept the dollar elevated and equities mixed.

News that distressed Chinese developer Evergrande suspended trading in its Hong Kong-listed shares compounded the uncertainty, following a tepid lead from Wall Street where speculation about more Federal Reserve policy tightening has winded investors.

The risk-off mood on trading floors summed up the generally gloomy sentiment seen through most of September, which saw central banks around the world either hike rates again or warn of more to come owing to stubborn inflation.

Meanwhile, one of the main drivers of that is a surge in crude prices, fuelled by thinning supplies after Saudi Arabia and Russia, with the two nations noting they would cut output until the end of the year and a pick-up in demand in key consumer nations including the United States and China.

News that stockpiles at the key US storage facility in Cushing, Oklahoma, had hit their lowest since July last year — and operational minimums — sparked a strong rally Wednesday, with WTI soaring more than three per cent to its highest since August 2022.

Brent pushed further above $97 to a new 10-month peak.

Amrita Sen, of consultant Energy Aspects, said, “My fear in this market is we have de-stocked so much inventory.

“Right now, what’s going on in the US — Cushing is dry.”

Chief Market Analyst at KCM Trade, Tim Waterer added, “While a longer period of high global interest rates could be problematic for oil demand in the future, supply side traits could favour continued upside risks for the price in the short-term.”

The spike in crude is causing headaches for central bank decision-makers, with Fed officials hinting that with inflation still well above target and the labour market still resilient they would likely have to push borrowing costs even higher than their already 22-year highs.

On Wednesday, Minneapolis Fed boss Neel Kashkari said a possible US government shutdown — caused by a standoff in Washington — and an autoworker strike could weigh on the economy and ease pressure on the bank to tighten further.

However, Kashkari further warned that if the economy remained in rude health and inflation did not come down, then more hikes would be likely.

He said, “If our interest-rate increases are not slowing the economy the way that we expect, then there is that risk that we might have to go higher.”

The prospect of an extended period of higher rates has pushed the dollar ever higher against its major peers, particularly the yen, which faces extra pressure owing to the Bank of Japan’s refusal to move away from its long-running, ultra-loose monetary policy.

The dollar is edging back towards the 150-yen mark last seen in October, leading Japanese authorities to say they are keeping an eye on movements and are ready to intervene to support the unit.

Nevertheless, National Australia Bank’s Tapas Strickland said, “Finance Minister (Shunichi) Suzuki’s comments that he is watching FX markets with a ‘sense of urgency’ has become a daily ritual, but he has so far stopped short of intervention. Not that urgent, evidently.”

Equity markets in Asia were mixed following a weak lead from Wall Street, with Tokyo, Hong Kong, Sydney, Mumbai, Bangkok and Wellington all down.