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Oil Prices Rise on Tight Supply, Renewed Risk Appetite

The sun sets behind an oil pump outside Saint-Fiacre, near Paris, France September 17, 2019. REUTERS/Christian Hartmann
The sun sets behind an oil pump outside Saint-Fiacre, near Paris, France September 17, 2019. REUTERS/Christian Hartmann
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Oil Prices Rise on Tight Supply, Renewed Risk Appetite

The sun sets behind an oil pump outside Saint-Fiacre, near Paris, France September 17, 2019. REUTERS/Christian Hartmann
The sun sets behind an oil pump outside Saint-Fiacre, near Paris, France September 17, 2019. REUTERS/Christian Hartmann

Oil prices extended gains on Thursday, riding higher on growing fuel demand and a bigger-than-expected draw in US crude inventories as production remains hampered in the Gulf of Mexico after two hurricanes.

The market was also supported by a return of appetite for risk assets as concerns eased over a potential default by property developer China Evergrande and its possible fallout on the world's second-largest economy, Reuters reported.

US West Texas Intermediate (WTI) crude rose 17 cents, or 0.2%, to $72.40 a barrel by 0645 GMT, while Brent crude rose 18 cents, or 0.2%, to $76.37 a barrel.

Both contracts jumped 2.5% on Wednesday after data from the US Energy Information Administration showed US crude stocks fell by 3.5 million barrels to 414 million barrels in the week to Sept. 17 - the lowest total since October 2018 - in a bigger drawdown than analysts had expected.

"With Gulf of Mexico production returning slowly, and natural gas prices remaining sky high, the structural outlook for oil remains promising as OPEC+ struggles to meet even its current production quotas," said Jeffrey Halley, analyst at brokerage OANDA.

Several OPEC+ countries - including Nigeria, Angola and Kazakhstan - have struggled in recent months to raise output due to years of under-investment or maintenance work delayed by the COVID-19 pandemic.

In a sign of strong fuel demand as travel bans ease, East Coast refinery utilization rates in the United States rose to 93%, the highest since May 2019, EIA data showed.

ANZ Research said market sentiment is also being supported by surging natural gas prices.

"Supply shortage of gas could encourage power utilities to shift from gas to oil if winter turns out to be colder this year," ANZ analysts said in a note.

Natural gas prices have risen sharply around the globe in recent months. That has been due to a combination of factors, including increased demand particularly from Asia as it enters its post-pandemic recovery, low gas inventories, and tighter-than-usual gas supplies from Russia.

The rise in oil prices came even as the US dollar held near a one-month high after the US Federal Reserve signaled rate hikes could come next year, more quickly than expected.

Oil prices typically fall when the dollar rises as a stronger greenback makes oil more expensive for holders of other currencies.

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Expert: Türkiye Anti-inflation Steps Don’t Go Far Enough

People shop at a bazaar in Istanbul. Reuters
People shop at a bazaar in Istanbul. Reuters
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Expert: Türkiye Anti-inflation Steps Don’t Go Far Enough

People shop at a bazaar in Istanbul. Reuters
People shop at a bazaar in Istanbul. Reuters

Although Turkish inflation slowed in September, it is still raging out of control with the government avoiding difficult decisions that could help tackle it, experts told AFP.

Türkiye has experienced spiraling inflation the past two years, peaking at an annual rate of 85.5 percent in October 2022 and 75.45 percent in May.

The government claims it slowed to 49.4 percent in September.

But the figures are disputed by the ENAG group of independent economists who estimate that year-on-year inflation stood at 88.6 percent in September.

Finance Minister Mehmet Simsek has said Ankara was hoping to bring inflation down to 17.6 percent by the end of 2025 and to “single digits” by 2026.

And President Recep Tayyip Erdogan recently hailed Türkiye’s success in “starting the process of permanent disinflation.”

“The hard times are behind us,” he said.

But economists interviewed by AFP said the surge in consumer prices in Türkiye had become “chronic” and is being exacerbated by some government policies.

“The current drop is simply due to a base effect. The price rises over the course of a month is still high, at 2.97 percent across Türkiye and 3.9 percent in Istanbul.

“You can’t call this a success story,” said Mehmet Sisman, economics professor at Istanbul’s Marmara University.

Spurning conventional economic practice of raising interest rates to curb inflation, Erdogan has long defended a policy of lowering rates. That has sent the lira sliding, further fueling inflation.

But after his reelection in May 2023, he gave Türkiye’s Central Bank free rein to raise its main interest rate from 8.5 to 50 percent between June 2023 and March 2024.

The central bank’s rate remained unchanged in September for the sixth consecutive month.

“The fight against inflation revolves around the priorities of the financial sector. As a result, it is done indirectly and generates uncertainty,” explained Erinc Yeldan, economics professor at Kadir Has University in Istanbul.

But raising interest rates alone is not enough to steady inflation without addressing massive budget deficits, according to Yakup Kucukkale, an economics professor at Karadeniz Technical University.

He pointed to Türkiye’s record budget deficit of 129.6 billion lira (3.45 billion euros).

“Simsek says this is due to expenditure linked to the reconstruction in regions hit by the February 2023 earthquake,” he said of the disaster that killed more than 53,000 people.

“But the real black hole is due to the costly public-private partnership contracts,” he said, referring to infrastructure contracts which critics say are often awarded to firms close to Erdogan’s government.

Such contracts cover construction and management of everything from motorways and bridges to hospitals and airports, and are often accompanied by generous guarantees such as state compensation in the event they are underused.

“We should question these contracts, which are a burden on the budget because this compensation is indexed to the dollar or the euro,” said Kucukkale.

Anti-inflation measures also tend to impact low-income households at a time when the minimum wage hasn’t been raised since January, he said.

“But these people already have little purchasing power. To lower demand, such measures must target higher-income groups, but there is hardly anything affecting them,” he said.