NEW YORK: Oil prices rose by about 1 percent after reaching a two-week low earlier in the session on Tuesday, as investors weighed expectations of tighter supply against demand concerns stemming from an uncertain economic outlook.
Brent crude futures were higher by 83 cents, or 0.89%, at $94.12 a barrel at 1:33 p.m. EDT (1733 GMT), while US West Texas Intermediate crude futures were trading 91 cents higher, or 1.01%, at $90.59.
Russia softened its gasoline and diesel export ban on Monday. Exports of products already accepted by Russian Railways and Transneft will be able to go ahead, while higher-sulphur gasoil and fuel used for bunkering will be exempt from the ban.
But the ban on exports of high-quality diesel and gasoline remains in place.
Oil supply remains tight as Russia and Saudi Arabia have extended production cuts to the end of the year. “Oil supply is expected to underwhelm demand in the foreseeable future and therefore any weakness, even if it is achingly startling, should not last,” said Tamas Varga, an analyst at oil broker PVM.
The world’s top central banks, the US Federal Reserve and the European Central Bank, have in recent days reiterated their commitment to fight inflation, signalling tight monetary policy may persist longer than previously anticipated. Higher interest rates slow economic growth, which curbs oil demand.
“Refined products remain under pressure as fears of higher oil prices for a longer period of time combined with higher interest rates for a longer period of time may depress demand,” said Andy Lipow, president of Lipow Oil Associates LLC.
Limiting gains, the US dollar hit a 10-month high on Tuesday, as higher bond yields attracted investors towards the greenback.
As the major currency used for oil pricing, a stronger dollar typically weighs on oil demand as it becomes more expensive for importers relative to their local currency.
Rating agency Moody’s said on Monday that a US government shutdown would harm the country’s credit, a warning coming one month after Fitch downgraded the United States by one notch on the back of a debt ceiling crisis.
“The threat of US government shutdown and its potential impact on the country’s credit rating can also be a factor in oil finding it increasingly challenging to provoke the magical $100/bbl target,” Varga added.
The American Petroleum Institute will release weekly US inventory data later on Tuesday. Analysts are expecting a drop of 1.7 million barrels for the week to Sept. 22, a preliminary Reuters poll found.