Oil prices increased on Wednesday, recovering some of their recent declines as industry data revealed an unexpected decrease in U.S. inventories, while the ongoing conflict in the Middle East remained a central concern.
Markets are also looking ahead to a series of significant economic reports and central bank meetings in major economies in the coming days, which are anticipated to influence the outlook for oil demand.
Brent oil futures for December delivery climbed 0.5 percent to $71.50 per barrel, while West Texas Intermediate (WTI) crude futures rose 0.6 percent to $67.63 per barrel by 00:11 ET (04:11 GMT). Both contracts experienced a sharp decline earlier this week after a less intense strike by Israel against Iran alleviated some fears regarding a severe escalation in the Middle East situation.
U.S. inventories see weekly draw – API
Data from the American Petroleum Institute (API) indicated that U.S. oil inventories decreased by 0.57 million barrels last week, contrasting with expectations for an increase of 2.3 million barrels. This figure typically foreshadows a similar trend in the official inventory data, which is set to be released later on Wednesday, providing some relief to oil markets by suggesting that supplies in the world’s largest fuel consumer remain somewhat constrained.
However, U.S. oil demand is anticipated to moderate in the upcoming months as the winter season tends to reduce travel. Additionally, persistent economic pressures from enduring inflation and elevated interest rates are expected to weigh on demand.
“Still, oil markets remain under pressure as attention returns to weak fundamentals, such as low demand from China and sufficient supply, as the Middle East conflict risk eases. Traders are also awaiting OPEC+’s production plans for December, as well as potential stimulus measures from China’s legislative meeting to support demand. Additionally, U.S. growth and employment data are in focus, offering clues for the Federal Reserve’s upcoming decision and insights ahead of the U.S. election,” said Vijay Valecha, chief investment officer, Century Financial.
Political uncertainty and upcoming U.S. elections
The forthcoming presidential elections also introduce a significant element of uncertainty for markets, as the outcomes will shape U.S. policy for the next four years. Donald Trump and Kamala Harris are poised for a competitive race, with both candidates advocating for increased U.S. oil production as part of their platforms.
Focus on economic data and central bank decisions
Several key economic indicators from major economies are expected in the coming days, coinciding with important central bank meetings. Third-quarter gross domestic product (GDP) data from the eurozone and the U.S. is due later on Wednesday. Additionally, the Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation, and nonfarm payroll data, a crucial labor market indicator, are scheduled for release on Friday.
These reports precede a Federal Reserve meeting next week, where a rate cut of 25 basis points is widely anticipated. In Asia, purchasing managers index data from China, the top oil importer, is expected on Thursday. A meeting of China’s National People’s Congress is also set for next week, which is likely to offer insights into plans for increased fiscal spending. Meanwhile, the Bank of Japan will make a decision on interest rates on Thursday amid rising political uncertainty, and the Reserve Bank of Australia will convene next week.
Stability in oil prices despite market pressures
Oil prices remained relatively stable on Tuesday following a decline in the previous session, somewhat supported by a U.S. initiative to purchase oil for the Strategic Petroleum Reserve (SPR). However, ongoing concerns regarding reduced future demand growth continued to exert pressure on the market.
Brent crude futures saw a slight increase of 3 cents to $71.45 per barrel by 04:15 GMT, while U.S. West Texas Intermediate crude gained 7 cents, reaching $67.45 per barrel. Both benchmarks had dropped 6 percent on Monday, hitting their lowest points since October 1. Investor sentiment was affected by indications that the Middle East conflict was unlikely to escalate, but worries about weakening global oil demand in the near future took precedence.
Supply disruption fears influence pricing
Concerns over potential supply disruptions in the Middle East, stemming from rising tensions, significantly impacted oil prices throughout the past month. On Monday, the U.S. announced intentions to purchase up to 3 million barrels of oil for the SPR, with deliveries planned through May of the following year. However, these purchases will restrict the government’s capacity to pursue further acquisitions until additional funding is authorized by lawmakers.
Inventory trends and market reports
A preliminary Reuters poll suggested that U.S. crude oil and gasoline inventories likely rose last week, while distillate stockpiles were expected to decrease. The API is set to release its weekly report on Tuesday, followed by the Energy Information Administration’s report on Wednesday.
Market adjustments amidst geopolitical changes
Oil prices fell sharply on Monday, driven by diminished fears of a potential war in the Middle East. Traders adjusted crude prices by removing risk premiums and refocusing on demand, which is expected to soften in the months ahead. Brent oil futures for December delivery dropped 4.1 percent, closing at $72.97 per barrel, while West Texas Intermediate crude futures fell by 4.2 percent to $68.76 per barrel by 19:57 ET (23:57 GMT). Both contracts approached their lowest levels since early October.
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