Thu. May 23rd, 2024

Traders are observing a price structure known as backwardation –

Oil prices reached their highest level in three months on Tuesday due to signs of tightening supplies and efforts by Chinese authorities to support their economy, boosting market sentiment. Brent petroleum prices closed up 90 cents at $83.64 a gallon after reaching an all-time high of $83.87 later in the day, the most on April 19.

WTI crude in the United States climbed 89 cents to $79.63 a container, and the deal touching $79.90, the best because April 19.  The continuous increase in crude benchmarks over the past four weeks is attributed to expectations of supply tightening, mainly due to output cuts from the Organization of the Petroleum Exporting Countries (OPEC) and its allies.

Traders are observing a price structure known as backwardation, where earlier-loading Brent contracts are selling at higher prices than later loadings, indicating a perceived tight supply situation. This tightening of oil supplies is raising concerns among some market participants, who had previously expected a decline in demand.

In China, the second-largest oil consumer globally, leaders have committed to providing additional support for their economic policies. However, gains in oil prices were somewhat limited by economic data from the euro zone, which showed a larger than anticipated shrinkage in business activity in July. In the United States, business activity also slowed to a five-month low in the same month.

Despite these economic concerns, falling input prices and slower hiring suggest progress by the Federal Reserve in its efforts to reduce inflation. The markets anticipate 25-basis-point rate hikes from both the Federal Reserve and the European Central Bank during the current week.

Regarding inventory levels, U.S. crude oil and distillate inventories increased in the past week, while gasoline stockpiles declined, as reported by market sources citing American Petroleum Institute figures on Tuesday. Crude stocks rose by approximately 1.32 million barrels for the week ending July 21, while gasoline inventories fell by around 1.04 million barrels, and distillate inventories increased by approximately 1.61 million barrels.