Oil Rebounds as Traders Weigh Outlook for Increased Consumption

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(Bloomberg) — Oil gained as traders weighed prospects for higher near-term demand against a potential economic slowdown triggered by aggressive US monetary tightening to quell the fastest inflation in decades.

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West Texas Intermediate edged above above $110 a barrel as the week opened after plunging almost 7% on Friday as concerns about the fallout from far higher US interest rates rattled financial markets. At the weekend, US Energy Secretary Jennifer Granholm warned drivers of a “continued upward pull on demand,” and the likelihood of sustained high gasoline prices.

Oil has soared in 2022 as the war in Ukraine disrupted supplies just as energy consumption increased following the pandemic. WTI, the US crude benchmark, is headed for a record-setting ninth consecutive quarterly increase, contributing to rampant inflation. Last week, the Federal Reserve increased interest rates by 75 basis points to tame the pace of price gains, and leading policy makers have vowed to keep going until inflation starts to ebb.

While the US projected in its June short-term outlook that local pump prices will average about $4.27 a gallon in the third quarter, the forecast could be “completely upended” by world events, for instance if the European Union were to fully cut off Russian oil, Granholm told CNN’s “State of the Union.”

Interruptions to supplies outside Europe have also acted to support prices. Libya has little chance of holding elections this year, the parliament-backed prime minister said, raising the prospect of further uncertainty for the nation’s oil industry. Fathi Bashagha, who’s engaged in a standoff with Abdul Hamid Dbeibah, predicted political upheaval is likely to continue through 2022.

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