Oil rallies as tight supplies counter expectations of a slowdown

Oil rose as tight near-term supplies offset concerns of an eventual economic slowdown.

West Texas Intermediate rose 2.1 per cent to settle above US$96 a barrel. The Federal Reserve is expected to increase interest rates this week to slow down economic growth. Despite the gloomier outlook, crude markets are pricing in remarkable strength for physical barrels with some buyers in Asia paying premiums of more than US$20 a barrel to secure certain crude grades. Nearby Brent futures are trading about US$5 over the next month’s contract, indicating refiners are willing to pay up to secure supplies.

“Crude prices are showing signs of stabilization around the mid-US$90s as the oil market still remains tight despite another wave of weakening economic data in the US and Europe,” said Ed Moya, senior market analyst at Oanda Corp. “Despite the growing risks of a severe recession, oil should see strong support at the US$90 level over the short-term.”