Oil prices remained mostly unchanged on Tuesday as investors weighed the potential impact of another U.S. interest rate hike on demand against supply concerns caused by an approaching hurricane in the U.S. Gulf Coast region.
Brent crude rose by 28 cents to reach $84.70 a barrel by 0820 GMT, while U.S. West Texas Intermediate crude increased by 25 cents to $80.35 a barrel.
Although the recent supply cuts by OPEC+ have boosted prices by approximately 12% and 13% for Brent and WTI, respectively, analysts claim that concerns about global oil demand persist due to the U.S. and China, the world’s two largest economies.
Last Friday, Federal Reserve Chair Jerome Powell stated that the central bank may have to raise rates further to control stubborn inflation.
Meanwhile, China’s economic recovery following the pandemic has encountered difficulties due to a worsening property market, sluggish consumer spending, and declining credit growth. As a result, Beijing has reduced key policy rates to support the activity in the world’s largest oil-importing nation.
Market participants are also watching for economic data releases from major economies later this week, as they will provide insights into the future path of interest rates.
“Maintaining the strong bullish trend observed in July may be challenging for oil prices at this point. Until interest rates peak, the U.S. and European economies will face downward pressure in the fourth quarter,” stated CMC Markets analyst Leon Li.
Regarding supply concerns, Tropical Storm Idalia hit western Cuba on Monday and is expected to become a hurricane as it moves towards Florida. The storm could cause power outages and potentially impact crude production in the eastern U.S. Gulf Coast.
In addition, anxiety has arisen following a fire at a Marathon Petroleum refinery last week, where a chemical leak ignited two large storage tanks containing volatile naphtha.
Marathon Petroleum announced on Monday its plan to restart units at the Garyville, Louisiana refinery, which has a per-day capacity of 596,000 barrels, making it the third-largest refinery in the United States.
“Such incidents will continue to drive upward movement in prices, as the oil industry is currently highly sensitive to disruptions in any refinery worldwide,” commented John Evans, an oil broker at PVM.