Oil prices fell on Wednesday as industry data showed an unexpected build in U.S. inventories, while persistent concerns over high U.S. interest rates also kept sentiment subdued.
Oil was on track for a fourth consecutive session of declines, as concerns over lackluster demand and reduced geopolitical tensions in the Middle East prompted selling. Additionally, waning optimism about an economic recovery in China, the world’s top oil importer, further dampened sentiment in the oil markets.
Brent crude oil futures expiring in July slid 0.6 percent to $82.40 per barrel, while West Texas Intermediate (WTI) crude futures dropped 0.7 percent to $78.13 per barrel as of 21:05 ET (01:05 GMT).
Unexpected build in U.S. inventories
Data from the American Petroleum Institute showed on Tuesday that U.S. oil inventories grew by 2.5 million barrels (mb) in the week to May 17, beating expectations for a draw of 3.1 mb. Gasoline stockpiles also grew by 2.1 mb, while distillate inventories fell by 320,000 barrels, the API data showed.
The unexpected build in inventories raised some concerns over sluggish U.S. oil demand, especially with regards to fuel consumption. The API data usually heralds a similar reading from official inventory data, which is due later on Wednesday.
U.S. fuel demand is set to increase in the coming weeks, with the upcoming memorial day holiday set to mark the beginning of the travel-heavy summer season. However, traders were fearful that pressure from sticky inflation and high interest rates would limit strength in demand over the coming months.
Read more: Oil prices dip amid fears on U.S. inflation, higher interest rates dampening demand
Rate fears in play ahead of Fed minutes
A string of cautious statements from Federal Reserve officials this week also weighed on sentiment, as markets feared that high-for-longer U.S. rates will eat into demand this year. Fed officials warned that the central bank needed much more confidence that inflation was falling, before it could begin cutting interest rates.
The minutes of the Fed’s late-April meeting are due later on Wednesday, and are expected to offer more cues on the central bank’s plans to cut rates. The dollar firmed ahead of the minutes, also pressuring oil prices.
Beyond the Fed, focus is also on a meeting of the Organization of Petroleum Exporting Countries and allies (OPEC+) in early-June, for any signs that the cartel will extend its current run of production cuts.
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