Oil prices inched higher in early trade as OPEC stuck to forecasts for robust global fuel demand growth, offsetting concerns of another U.S. Federal Reserve interest rate hike next week after consumer prices unexpectedly rose in August.
U.S. West Texas Intermediate crude was at $88.72 a barrel, up $1.14, or 1.30%.
The Organization of the Petroleum Exporting Countries (OPEC) on Tuesday reiterated forecasts for growth in global oil demand in 2022 and 2023, citing signs that major economies were faring better than expected despite headwinds such as surging inflation.
Oil demand will increase by 3.1 million barrels per day (bpd) in 2022 and by 2.7 million bpd in 2023, OPEC said in a monthly report, leaving its forecasts unchanged from last month.
“The resilient moves in oil prices suggest that undersupply is still a primary issue in the physical markets, especially after OPEC kept its positive demand outlook on Tuesday,” said Tina Teng, an analyst at CMC Markets.
Oil prices were also supported by reports that the U.S. Biden administration was considering refilling its strategic oil reserve, as well as lower market expectations for a revival of the West’s 2015 nuclear deal with Iran, said ANZ Research analysts in a note.
Weighing on oil and financial markets, however, was a hotter-than-expected U.S. inflation report on Tuesday that dashed hopes that the Fed could scale back its rate policy tightening in the coming months.
Fed officials are set to meet next Tuesday and Wednesday, with inflation remaining way above the U.S. central bank’s 2% target.
In China, tough ongoing COVID-19 curbs are squeezing fuel demand at the world’s largest oil importer.
“China’s zero-COVID policy remains intact and that will keep any rebounds that emerge over the coming weeks capped,” said Edward Moya, a senior market analyst at OANDA, in a note.
“The U.S. is the big wildcard and if that demand outlook weakens, oil could resume its downward trajectory that has been in place since the start of the summer.”
On the supply side, U.S. crude stocks rose by about 6 million barrels for the week ended Sept. 9, according to market sources citing American Petroleum Institute figures on Wednesday.
The U.S. government will release inventory data at 10:30 a.m. EDT (1430 GMT) on Wednesday.