Oil made minimal gains as traders continue to weigh a weaker demand outlook against tightened crude supplies and a looming diesel shortage heading into winter.

West Texas Intermediate remained near US$85, marking the fifth-straight session that futures hovered within a narrow $1.50 range as investors wait for further demand cues ahead of expected supply tightness. Since late September, crude prices have been bouncing in a range of about $17 as traders weigh interest rate hikes that menace economic growth against planned output cuts from the Organization of Petroleum Exporting Countries and its allies.

Meanwhile, energy analysts warned that the market faces a shortfall of refined products heading into the northern hemisphere’s winter. As the deadline to ban Russian products approaches for many countries, markets face a structural shortfall of diesel, which will have serious implications for inflation, Goldman Sachs said in a note to clients. Energy Aspect’s Amrita Sen warned the New York region will be especially hard-pressed to replace Russian fuel. 

A weekly U.S. crude report Wednesday will give further indications of where markets stand heading into winter, providing some price guidance. 

“Oil markets will be looking to tomorrow’s inventory report for direction given a relatively narrow trading range in recent days,” said Stacey Morris, head of energy research at VettaFi. “Until the market gets some direction from headlines or the inventory report, oil may just trade relatively flat.”

Crude has been heavily influenced by broader market trends and shifts in the dollar in recent weeks as central banks embark on one of the most aggressive rate hike cycles in decades. Investors are weighing concerns about the impact of a global economic slowdown and tighter monetary policy against the scope for a reduction in supply. JPMorgan Chief Executive Officer Jamie Dimon said at a conference that he is currently more worried about geopolitical tensions than the severity of a forthcoming recession, however. 

“The argument that recession fears and demand destruction will be the dominant driving force in coming months might look valid but unless these concerns are confirmed by conspicuously weakening structure any downside price potential will likely remain restrained,” said Tamas Varga, an analyst at PVM Oil Associates.

Prices:

• WTI for December delivery rose 74 cents to settle at $85.32 a barrel.
• Brent for December settlement increased 26 cents to $93.52 a barrel.

One pillar of support for the market despite a sharp drop since earlier in the year has been the structure of the futures curve. Brent futures are in a backwardation of about $2, indicating tight supply, while the US gasoline market’s structure also firmed markedly. 

Speaking at a conference in Singapore, Fatih Birol, executive director of the International Energy Agency, said the recent OPEC+ supply cut was unfortunate, especially as several economies are now on brink of recession. Birol also said that while IEA members have the stockpiles available to conduct another round of strategic reserve releases, that’s not currently on the agenda.

Earlier Tuesday, Saudi Arabia’s oil minister defended the OPEC+ output cut and criticized major crude importers for emptying reserve crude stockpiles to lower prices. The depletion “may become painful” in coming months, Prince Abdulaziz bin Salman said at the Future Investment Initiative conference in Riyadh.