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Oil futures surge to a one-week high on US diesel prices and supply concerns

Weak economic data and stronger dollar cap gains


Oil futures rose nearly 1 percent to a one-week high on Friday as diesel prices rose in the US, the number of oil rigs decreased and a fire broke out at a Louisiana refinery.

Brent futures were up $1.12, or 1.3%, to $84.48 a barrel, while West Texas Intermediate (WTI) crude was up 78 cents, or 1.0%, to $79.83 a barrel.

Diesel futures rose nearly 5% to their highest level in nearly seven months, pushing the diesel crack spread, a measure of refinery profit margins, to its highest level since January 2023.

The increase in the diesel crack spread was driven by concerns about diesel shortages as refineries went into maintenance. It’s fair to say that prices were also supported by the fire at the Louisiana refinery and the decline in US oil rigs.

A fire in a giant naphtha storage tank was contained at Marathon Petroleum’s 596,000 barrels per day (bpd) Garyville, Louisiana refinery Friday afternoon.

Weak economic data and a stronger dollar limited gains. For the week, Brent was down less than 1% and WTI was down nearly 2%. Last week, both indicators fell about 2%.

In Baker Hughes’ report, in August, US energy firms reduced the number of active oil rigs for the ninth month.

Crude oil prices rose despite weak economic news from Europe’s largest economy, Germany. The US dollar rose to an 11-week high against a basket of other currencies after US Federal Reserve Chairman Jerome Powell said interest rate hikes could continue, which he deemed necessary to fight inflation.

Higher interest rates can slow economic growth and reduce oil demand. A stronger dollar could also slow demand, making oil more expensive for those holding other currencies.

Meanwhile, a survey conducted on Friday showed that consumer confidence in the US fell modestly in August as short- and long-term inflation expectations worsened.

On the supply side, it is not right to see the possibility of a crude oil deficit as an inevitable outcome. Norwegian energy firm Equinor, for example, said it started production at its expanded Statfjord Ost field six months ahead of schedule. The easing of sanctions on Venezuela’s oil sector, Iran’s efforts, and the possibility of Iraq’s exports to continue through the Ceyhan terminal should be taken into account.