Oil extends gains by over $1 as risk appetite improves, US inventories fall

By Florence Tan

SINGAPORE (Reuters) -Oil rose more than $1 a barrel on Thursday, extending gains from the previous session, buoyed by improved risk appetite among investors as lower crude inventories and a rebound in gasoline demand in the United States supported prices.

Brent crude futures for September rose $1.13, or 1.1%, to $107.75 a barrel by 0619 GMT, after gaining $2.22 on Wednesday.

U.S. West Texas Intermediate crude (WTI) was at $98.53 a barrel, up $1.27, or 1.3%, after rising $2.28 in the previous session.

"Risk sentiment has recovered from recession fears due to the ongoing U.S. earnings optimism and less aggressive Fed rhetoric on rate hikes, which supported a rally in the crude market," CMC Markets analyst Tina Teng said, adding that a weakened U.S. dollar has also lifted commodities prices.

The U.S. Federal Reserve raised its benchmark overnight interest rate by three-quarters of a percentage point, in line with expectations, to cool inflation, while the dollar fell on hopes for a slower hiking path.

A weaker dollar makes oil, priced in dollars, cheaper for buyers in other countries to purchase.

On supplies, U.S. crude oil stockpiles fell by 4.5 million barrels last week, against expectations of a 1 million-barrel drop, while U.S. gasoline demand rebounded by 8.5% week on week, data from the Energy Information Administration showed. [EIA/S]

"The U.S. consolidated its position as the world's largest petroleum exporter," Citi analysts said in a note, as combined gross exports of crude oil and refined products stood at a record 10.9 million barrels a day.

U.S. crude exports reached a record 4.5 million bpd as WTI traded at a steep discount to Brent, making purchases of U.S. crude grades more attractive to foreign buyers.

Prices also found support as the Group of Seven richest economies aims to have a price-capping mechanism on Russian oil exports in place by Dec. 5, a senior G7 official said on Wednesday.

U.S. crude oil production growth could also be limited by the availability of fracking equipment and crews, as well as capital constraints, executives said this week.

Russia has cut gas supply via Nord Stream 1, its main gas link to Europe, to just 20% of capacity. That could lead to switching to crude from gas and prop up oil prices in the short term, analysts said.

"We increase our total estimates for additional oil demand from gas to oil switching by 700,000 bpd from October 2022 through March 2023," JP Morgan analysts said in a note.

However, this is offset by normalising Libyan supply, leading to a largely balanced global oil market in the fourth quarter, followed by a 1 million bpd stockbuild in the first quarter of 2023, they added.

"We keep our price forecast unchanged and see global oil price in the low-$100s in 2H22 and high $90s in 2023," the bank said.

(Reporting by Florence Tan in Singapore and Arathy Somasekhar in Houston; Editing by Stephen Coates and Clarence Fernandez)