Oil Prices Rise As Focus Returns To Supply Tightness

After dipping on Wednesday, oil prices rebounded earlier today as traders refocused their attention on signs of supply tightness, brushing aside the Fed's latest rate hike.

Brent crude was trading above $83 per barrel and West Texas Intermediate was changing hands at close to $80 per barrel.

This followed a decline in prices on Wednesday after the Energy Information Administration reported modest draws in crude oil and fuel inventories while analysts had expected more substantial declines.

Also on Wednesday, the Federal Reserve announced another rate hike of a quarter of a percentage point, signaling there may be more hikes down the road.

All this has been bearish for oil but it appears that traders are beginning to hear the warnings of tight supply as well.

Analysts expect Saudi Arabia to extend its voluntary production cuts beyond August if prices don't rise more substantially, Bloomberg reported earlier in the week. There is a possibility it would start unwinding these cuts in two months, according to some analysts, but it may just as well decide to extend them.

"The kingdom will want to see a protracted rise toward $90 a barrel and possibly improvement in Chinese economic data to start considering putting the 1 million barrels per day back into the market," Tamas Varga from PVM Oil Associates told the news outlet.

Meanwhile, prices are likely to fall later today as the European Central Bank is set to also announce a rate hike and indicate it remains ready to hike more as it tries to tackle inflation in the eurozone.

Going forward, expectations are for higher prices, with analysts citing resilient and robust demand, and tighter supply because of OPEC+ production controls and a decline in the U.S. rig count reflecting the industry's increasingly cautious approach to production growth.

By Charles Kennedy for Oilprice.com

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