Worries that global crop shortages could reduce biofuel blending and raise oil demand caused oil to rise more than $1 on Wednesday.
The US West Texas Intermediate (WTI) futures gained by $1.34 or 1.9% to $72.53 a barrel, while Brent futures increased by $1.22 or 1.6% to close at $77.12 a barrel.
Following a government assessment that revealed a large portion of the grains were under stress due to dry circumstances as they approached critical development phases, US corn and soybean prices soared to multi-month highs on Wednesday.
The news that the US Dollar dropped against a basket of currencies on Wednesday as Federal Reserve Chair Jerome Powell signaled that the central bank is close to reaching its policy destination supported oil prices as well.
In his semi-annual report to Congress, Mr. Powell underlined that higher rates are necessary to battle inflation.
He supported the central bank’s aim of 2% inflation while remarking that two additional rate hikes this year are “a pretty good guess.”
Dollar-denominated oil becomes more appealing to investors holding other currencies when the US dollar declines, increasing demand.
The American Petroleum Institute (API) reported on Wednesday that US crude oil stockpiles decreased last week while gasoline inventories increased. Approximately 1.2 million barrels were lost from crude inventories in the week ending June 16.
After being postponed a day due to the Juneteenth holiday on Monday, the Energy Information Administration (EIA) will officially disclose data on US oil inventories on Thursday.
Gains in oil prices were restrained as data on Wednesday revealed that British inflation defied forecasts of a downturn.
The rate remained at 8.7% in May, raising hopes that the Bank of England will increase interest rates on Thursday by a half-point.
Market analysts caution that as nations work to combat inflation, this may have an impact on oil demand in the years to come.
