Oil prices ease 1% on profit taking, interest rate worries

NEW YORK: Oil futures eased about 1% on Thursday, as traders took profits after prices soared early to 10-month highs and some worried that high interest rates may weigh on western economies and oil demand.

On its second to last day as the front-month, Brent futures for November delivery fell 43 cents, or 0.5%, to $96.12 a barrel by 11:21 a.m. EDT (1521 GMT).

Brent futures for December, which will soon be the new front-month, were down 0.3% to $94.07 per barrel.

U.S. West Texas Intermediate (WTI) crude fell 77 cents, or 0.8%, to $92.91 per barrel.

Oil jumps 3% as steep US crude stockdraw adds to supply concerns

The Brent front-month rose early to its highest since November 2022 and WTI to its highest since August 2022 on scarce supply and inventory declines.

But with Brent near $100 a barrel, more traders are worried that high oil prices will encourage central bankers to persist with high interest rates to curb sticky inflation.

"Investors know that higher oil prices are going to hurt the economy ... not to mention the fear of rates staying higher for longer," said Naeem Aslam of Zaye Capital Markets.

The U.S. economy maintained a fairly strong 2.1% pace of growth in the second quarter and appears to have gathered momentum this quarter with a resilient labor market driving strong wage gains.

Growth estimates for the July-September quarter are currently as high as a 4.9% rate. But the fourth quarter could see a sharp slowdown if there is a U.S. government shutdown

due to infighting among Republicans in the House of Representatives.

U.S. Federal Reserve (Fed) officials are focused on the super core price measure after hiking the benchmark overnight interest rate by 525 basis points since March 2022 to the 5.25%-5.50% range.

US crude stockpiles fall

U.S. crude stocks fell by 2.2 million barrels last week to 416.3 million barrels, government data showed, far eclipsing the 320,000-barrel drop analysts expected in a Reuters poll.

Crude stocks at the Cushing, Oklahoma, storage hub, delivery point for U.S. crude futures, fell to the lowest since July 2022, data showed. Stockpiles at Cushing have been falling to near historic lows due to strong refining and export demand, prompting concerns about quality of the remaining oil.

"Cushing storage has shrunk to a historically low level, leading to a further increase in backwardation in the WTI curve," analysts at Barclays, a bank, said in a note.

Backwardation is a situation where current or spot prices are higher than future prices, giving energy firms little incentive to pay to store fuel for future months.

"In the absence of a demand shock, it might take a sustained further narrowing of the WTI-Brent spread for a material turnaround in storage level at Cushing to occur," Barclays said.

The premium of Brent over WTI held near a five-month low after narrowing to $2.87 per barrel on Wednesday, its lowest since late April.

The premium of the WTI front-month over the second month held near a 14-month high for a second day. On Wednesday, that premium soared to $2.38 a barrel, the highest since the end of July 2022.

U.S. crude draws follow combined cuts of 1.3 million barrels a day to the end of the year by Saudi Arabia and Russia, part of OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and allies.

Russia said its ban on fuel exports will remain in place until the domestic market stabilizes and noted it has not discussed with OPEC+ a possible supply increase to compensate for that fuel export ban.