Oil rallies as grain markets tighten, dollar falls on Fed Chair comments

Brent Crude price news: Oil prices gained a dollar a barrel on Wednesday as U.S. corn and soybean prices raced to multi-month highs, raising expectations that crop shortfalls around the globe could lower biofuels blending and increase oil demand. Brent futures rose $1.22, or 1.6 per cent, to settle at $77.12 a barrel, while the U.S. West Texas Intermediate (WTI) crude futures rose $1.34, or 1.9 per cent, to settle at $72.53 a barrel. Both contracts hit two-week highs earlier in the session.

Chicago Board of Trade corn futures rose 5.2 per cent on Wednesday after a government report showed much of the U.S. crop being stressed by dry conditions as it neared key development phases, traders said. CBOT November soybeans hit their highest since March 9.

"The grain markets are starting to wake up to the fact that inventories are low and it'll only be a matter of time before the oil market wakes up to that fact," Flynn said.

Also supporting oil prices, the U.S. dollar fell against a basket of global currencies on Wednesday after Federal Reserve Chair Jerome Powell suggested that the central bank is nearing its policy destination.

A cheaper greenback makes dollar-denominated oil more attractive for investors holding other currencies, raising demand.

U.S. crude oil inventories fell last week, while gasoline inventories rose, according to market sources citing American Petroleum Institute figures on Wednesday. Crude stocks fell by about 1.2 million barrels in the week ended June 16, according to the sources.

Official U.S. oil inventory data from the Energy Information Administration will be released on Thursday, after being delayed a day by the Juneteenth public holiday on Monday.

Oil price gains were capped after data showed on Wednesday that British inflation defied expectations of a slowdown. The rate held at 8.7 per cent in May, boosting expectations the Bank of England will raise interest rates by a hefty half a percentage point on Thursday.

"Countries are struggling to rein in inflation ... and that's going to dampen growth and threaten recessions across the globe," said Craig Erlam, senior markets analyst at OANDA.