Oil prices rebounded on Wednesday as US crude stocks declined, alleviating concerns sparked by the possibility of further interest rate hikes. The previous day, futures had dropped by almost 3 percent. Brent, the global oil benchmark, rose by 0.62 percent to reach $72.71 per barrel, while West Texas Intermediate, which tracks US crude, increased by 0.56 percent to reach $68.08 per barrel.
The decline in oil prices on Tuesday reflected concerns about a weaker global economic growth outlook. Edward Moya, senior market analyst at Oanda, stated that changing the minds of energy traders would be challenging, as fears of weaker global growth persist. He also noted that positive news in the US might lead to further tightening by the Federal Reserve, and inflation remains stubbornly high in Europe, potentially triggering more rate hikes and a harsher recession.
The possibility of higher interest rates can slow down the global economy and reduce crude demand. US consumer confidence has increased this month, driven by optimistic views on the labor market, business conditions, and family finances. The Consumer Confidence Index rose to 109.7 from 102.5 in May, with consumers also expressing more positive assessments of current business and labor market conditions.
In terms of fuel demand, US crude stocks declined by 2.4 million barrels last week, exceeding analysts’ expectations. However, concerns over recession and future demand paths remain, as oil time spreads, the price difference between front month and second month futures contracts, are dislocated compared to current inventory levels. Goldman Sachs highlighted that front-to-back Brent time spreads are $10 lower than their current forecasts, emphasizing the impact of higher interest rates and recessionary concerns on inventory destocking and weaker time spreads.