Oil prices rally on US inventory drop

June 29, 2023 (MLN): Oil prices rose on Thursday extending previous trading session gains amid a significant drop in U.S crude inventories.

Brent crude is currently trading at $74.10 per barrel, up by 0.52% on the day.

While West Texas Intermediate crude (WTI) is trading at $69.56 per barrel, up by 0.58% on the day.

Both benchmarks climbed about 3% on Wednesday after the U.S. Energy Information Administration (EIA) said crude inventories dropped by 9.6 million barrels in the week ended June 23, as Reuters reported.

Market traders are highly concerned about further interest rate hikes and weak economic data in China.

The Federal Open Market Committee paused its series of interest-rate hikes for the first time in 15 months, leaving rates in a range of 5% to 5.25%.

But Fed officials estimated rates would rise to 5.6% by the end of the year, according to their median projection, implying two additional quarter-point hikes following surprisingly persistent inflation and labor-market strength.

Moreover, markets are pricing in an 84.3% probability of the Fed hiking rates by 25 bps in July before holding steady for the remainder of the year, according to CME Fed WatchTool.

Adding to pressure, annual profits at industrial firms in China, the world's second-biggest oil consumer, extended a double-digit decline in the first five months as softening demand squeezed margins.

Tetsu Emori, CEO of Emori Fund Management Inc said that the impact of the spread of electric vehicles and improvements in energy efficiency in many industries to tackle climate change may be beginning to affect the underlying demand structure itself.

Furthermore, U.S. energy firms last week cut the number of oil and natural gas rigs operating for an eighth week in a row for the first time since July 2020.

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