Oil rises 2% on supply concerns, expectations for fuel switching

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Oil prices edged lower on Wednesday on demand concerns raised by the prospect of further increases to interest rates in an effort to tackle rising inflation in Europe and the United States.

Brent crude futures fell by 34 cents, or 0.36%, to $92.83 a barrel while U.S. West Texas Intermediate crude was down 32 cents at $86.99.

The European Central Bank’s (ECB) chief economist, Philip Lane, on Wednesday repeated the bank’s pledge to continue raising interest rates with its focus on inflation.

Higher energy prices remain a “dominant driving force of inflation” in the euro zone, Lane said.

A hotter than expected U.S. inflation report on Tuesday also dashed hopes the Federal Reserve could scale back its rate policy tightening in the coming months.

Fed officials are set to meet next Tuesday and Wednesday, with inflation way above the U.S. central bank’s 2% target.

The International Energy Agency (IEA), meanwhile, expects the deepening economic slowdown and a faltering Chinese economy to cause global oil demand to grind to a halt in the fourth quarter of the year.

Tough COVID-19 curbs in China are squeezing fuel demand at the world’s largest oil importer.

However, some bullish elements from Wednesday’s IEA report capped price falls. Among them were expectations of widespread switching from gas to oil, estimated to average 700,000 barrels per day (bpd) in October 2022 to March 2023 – double the level of a year ago.

The IEA also said that global observed inventories fell by 25.6 million barrels in July.

The report followed Tuesday’s forecasts by the Organization of the Petroleum Exporting Countries (OPEC) for robust growth in global oil demand in 2022 and 2023, citing signs that major economies are faring better than expected despite challenges such as surging inflation




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