Oil prices fell on Thursday after official data showed a surprise build in U.S. crude inventories, while the International Energy Agency (IEA) also trimmed its oil demand growth forecast for 2024 and flagged a looming supply glut.
Despite this, larger declines in crude prices were held back as the U.S. dollar fell in the wake of softer-than-expected inflation data, even as the Federal Reserve drastically lowered its outlook for interest rate cuts in 2024.
The US Federal Reserve kept interest rates unchanged on Wednesday.
The Fed’s FOMC (Federal Open Market Committee) report said that while recent indicators suggest that economic activity has continued to expand at a solid pace, job gains have remained strong, and the unemployment rate has remained low, inflation has remained elevated.
Brent oil futures expiring in August fell 0.5 percent to $82.24 a barrel, while West Texas Intermediate crude futures fell 0.5 percent to $77.76 a barrel by 21:31 ET (01:31 GMT).
U.S. inventories rise, IEA forecasts supply glut
Government data showed on Wednesday that U.S. oil inventories unexpectedly grew by 3.7 million barrels in the first week of June, against expectations for a draw of 1.2 million barrels. Outsized builds in distillates and gasoline stockpiles also raised concerns that fuel demand was not picking up as expected for the summer season.
The build in inventories came as a monthly report from the IEA showed the agency slightly trimming its outlook for demand growth in 2024 by 100,000 barrels per day to 960,000 barrels per day. The IEA also warned that it expected global oil demand to peak by 2029 and then begin contracting in the following years. Increased supply from the U.S. and other regions outside the Organization of the Petroleum Exporting Countries (OPEC) was also expected to create a supply glut eventually.
OPEC maintains demand forecast
The IEA’s forecast contrasted with that of OPEC, which in a monthly report earlier this week maintained its demand forecast for the year. OPEC had also assured markets that any plans to increase production would be largely dependent on oil prices, after initial plans to begin scaling back supply cuts this year were received negatively by markets.
Hawkish Fed signals, weaker dollar in play
Oil prices benefited from a softer U.S. dollar, which fell as markets digested mixed cues on U.S. interest rates. Broader risk appetite rose as U.S. consumer inflation data for May came in slightly lower than expected, which increased hopes that the disinflation trade was in play.
However, the Federal Reserve said it only saw one interest rate cut this year, with some members of the central bank even calling for no rate cuts, in the face of sticky inflation. The prospect of rates remaining high for longer bodes poorly for economic growth and could dent oil demand in the coming months if growth cools.
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