Oil prices jump after U.S. crude, fuel stocks drop, dollar weakens

By David Gaffen

NEW YORK (Reuters) – Oil prices rose on Wednesday for a second day, rebounding from recent losses as the U.S. dollar eased off recent gains and U.S. fuel inventory figures showed larger-than-expected drawdowns and a rebound in consumer demand.

Brent crude futures settled up $3.05, or 3.5%, at $89.32 per barrel. U.S. West Texas Intermediate (WTI) crude futures ended up $3.65, or 4.7%, to $82.15 a barrel.

Analysts said oil prices, down more than 22% during the third quarter, may be bottoming out as Chinese demand shows signs of rebounding and the U.S. sales of strategic reserves come to a close.

“I do think we are bottoming, but it is going to continue to be exceptionally volatile, and continue to be keeping easy speculative money away from this market,” said Rebecca Babin, senior energy trader at CIBC Private Wealth US.

U.S. inventory figures showed consumer demand rebounded, though refining product supplied remained 3% lower over the last four weeks than the year-ago period.

U.S. crude stocks fell by 215,000 barrels in the most recent week, while gasoline inventories declined by 2.4 million barrels and distillate inventories by 2.9 million barrels, as refining activity declined following several outages. [EIA/S]

Refining activity dipped, but refiners are still running at 90.6% of overall capacity in the United States, the highest for this time of year since 2014, on both domestic and export demand.

The dollar hit a fresh two-decade peak against a basket of currencies on Wednesday before pulling back. A strong dollar reduces demand for oil by making it more expensive for buyers using other currencies. In early afternoon U.S. hours, the dollar index was down 0.9%.

“These are all dollar-driven rallies across the board,” said Eli Tesfaye, senior market strategist at RJO Futures. “All raw material dominated currencies are up – crude is not just moving in isolation here.”

Goldman Sachs cut its 2023 oil price forecast on Tuesday, due to expectations of weaker demand and a stronger U.S. dollar but said global supply disappointments only reinforced its long-term bullish outlook.

Global equities pulled off two-year lows on Wednesday, after the Bank of England said it would step into the bond market to stem a damaging rise in borrowing costs, dampening investor fears of contagion across the financial system.

GRAPHIC-Dollar strength outperforms oil price

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(Reporting by David Gaffen; additional reporting by Shadia Nasralla in London; Editing by Lisa Shumaker and David Gregorio)