Oil Rises in Volatile Week as Tight Market Vies With Slowdown

(Bloomberg) -- Oil rose after a two-day decline as signs of tight physical markets outweighed concerns over a potential global slowdown.

West Texas Intermediate crude futures rallied 4.3% to settle above $102 a barrel. Sparking fresh supply worries, Russia ordered a halt to a key Kazakh export terminal that had been expected to load 1.24 million barrels a day in July, according to a plan seen by Bloomberg. Separately, China is considering a $220 billion stimulus that could potentially bolster demand in the world's biggest oil importer. 

Meanwhile, traders digested a mixed US government crude inventory report. Gasoline inventories and refinery utilization rates fell, according to an Energy Information Administration report Wednesday. US crude stockpiles saw a larger-than-expected gain, with inventories rising 8.23 million barrels last week.

The physical market tightness has resulted in a steep backwardation, and “although we've seen big moves in futures prices, the curve has stayed backwardated,” said Quinn Kiley, a portfolio manager at Tortoise Capital Advisors, a firm that manages roughly $8 billion in energy-related assets. “There is a lot of noise, more so than a lot of news.”

Oil has given up the bulk of the gains seen in the wake of Russia's invasion of Ukraine, which lifted the US benchmark above $130 a barrel in March. Surging inflationary pressures have prompted the Federal Reserve to tighten policy aggressively, which in turn spurred expectations that a demand-sapping recession may lie ahead. That has weighed on headline prices, but supply tightness lingers.

“While supply is constrained by structural underinvestment, demand remains resilient in the face of recessionary concerns,” JPMorgan Chase & Co. analysts, including Christyan Malek, said in a note to clients.

Until recently, surging refined fuels prices had helped keep the market strong, boosting the incentive for refiners to process more crude. Shell Plc said strong margins from fuel production have added more than $1 billion to earnings in the last quarter. In recent days, however, some of the firmness in fuel markets dissipated.

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