After retreating yesterday, oil markets are trading significantly higher this morning despite economic headwinds. The Federal Reserve hiked interest rates by 0.75% to a range of 3.0%-3.25%, which in turn will reduce economic demand and fuel consumption. Despite recent rate hikes, unemployment saw only moderate increases, which suggests that the Fed has so far navigated the “soft landing” well enough – though it’s too soon to tell how much economic impact will ultimately arise. Along with the US Fed hiking rates, Great Britain, Switzerland, Indonesia, and Norway all hiked interest rates to check rising inflation.
Rather than worrying about economic news, though, markets are responding to more bullish market indicators this morning. China’s oil demand is rebounding thanks to increased export quotas. The changes should cause crude oil prices to go up while lowering diesel prices, though today the market seems to be reacting more to the former phenomenon. Moreover, Russia has announced their largest conscription since World War II, a sign that the conflict is escalating and could prolong oil embargoes set to go into effect in January.
Yesterday, the EIA reported fairly bearish data, with an across-the-board build for crude oil, diesel, and gasoline inventories. Although inventories did rise, they remain tight, with both diesel and gasoline stocks well below historic averages. On the other hand, seasonal gasoline demand is at its lowest level since 1997, which could weigh on markets in the coming weeks. Diesel and jet fuel demand also took a turn lower this week. With inventories at historic lows, weak demand is preventing a more severe crisis in fuel supplies. If demand rebounds, it could bring much tighter fuel markets in the coming months.