Oil prices experienced a slight increase on Thursday, buoyed by a larger-than-anticipated draw in U.S. inventories and heightened geopolitical tensions in the Middle East. However, overall gains were constrained by rising U.S. product inventories, as traders adopted a cautious stance ahead of an OPEC+ meeting later in the day, which is expected to provide further insights into supply dynamics.
Brent crude futures, set to expire in February, climbed by 0.1 percent to $72.37 a barrel, while West Texas Intermediate (WTI) crude futures increased by 0.2 percent to $68.32 a barrel by 20:57 ET (01:57 GMT). The oil market has seen some upward movement this week, as the ceasefire between Israel and Lebanon remains precarious.
Anticipation surrounds OPEC+ meeting for supply guidance
The Organization of the Petroleum Exporting Countries and its allies (OPEC+) are scheduled to convene later on Thursday, with recent reports indicating that the cartel may further defer plans to boost production. Over the past two years, OPEC+ has cut production by more than 2 million barrels and is expected to prolong these reductions until at least the second quarter of 2025.
The group is likely to maintain limited supply amid concerns regarding declining oil demand, particularly from China, the world’s leading oil importer. OPEC+ has consistently revised down its forecasts for global demand growth in 2024 and 2025, citing uncertainties surrounding a sluggish economic recovery in China. Nonetheless, sentiment towards demand has improved recently, bolstered by signs of economic resilience in the U.S. Additionally, expansionary policies under President-elect Donald Trump are anticipated to support fuel demand.
U.S. oil inventories decline, but product stocks rise
Data released on Wednesday revealed that U.S. oil inventories fell by a more significant-than-expected 5.07 million barrels in the final week of November. However, stockpiles of gasoline and distillates increased, indicating that overall fuel demand is still cooling in the world’s largest fuel consumer. While demands for heating fuels are projected to rise during the winter months, a decrease in travel activity is expected to lead to a decline in overall oil demand.
Oil prices dipped slightly on Wednesday following a substantial rise in the previous session, triggered by Israel’s warning of potential military action against Lebanon if the ceasefire collapses. This upward trend faced obstacles due to industry reports indicating an unexpected increase in U.S. oil inventories. Market sentiment remained uneasy ahead of the OPEC+ meeting, where it is expected that the cartel will postpone plans to increase production.
Despite this, oil prices retained a degree of risk premium due to ongoing ceasefire violations between Israel and Lebanon, along with escalating tensions between Russia and Ukraine. By 20:51 ET (01:51 GMT), Brent crude futures for February delivery had fallen 0.1 percent to $73.58 a barrel, while WTI crude futures also dropped 0.1 percent to $69.50 a barrel, despite both contracts having surged over 2 percent on Tuesday.
U.S. inventories increase more than expected
According to the American Petroleum Institute (API), U.S. oil inventories increased by 1.2 million barrels for the week ending November 29, contrary to expectations for a decrease of 2.1 million barrels. This unexpected rise has raised concerns about weakening demand in the world’s largest fuel consumer, especially with winter approaching. API data often precedes similar government inventory reports, which were scheduled for release later on Wednesday and could indicate a loosening of supply constraints.
Government data from the previous Wednesday showed a decline in U.S. oil inventories by 1.8 million barrels for the week ending November 22. In contrast, gasoline inventories rose by 3.3 million barrels, marking the second consecutive week of significant increases, alongside a rise in distillate stocks. These inventory builds have heightened concerns about potential demand slowdowns in the U.S., particularly as winter typically brings reduced travel.
Read more: Oil prices climb on positive data from China; OPEC meeting on the horizon
China’s oil demand outlook remains weak
The outlook for oil demand in China appears weak, with projections suggesting a possible peak as early as next year, further widening the gap between supply and demand. Nonetheless, recent positive economic indicators from China, the world’s largest oil importer, have provided some support to crude prices. November’s Purchasing Managers’ Index (PMI) data showed an increase in manufacturing activity, corroborated by both government and private reports, following a series of aggressive stimulus measures implemented by Beijing since late September. This has sparked optimism for a rebound in economic activity in the coming months, supported by ongoing government assistance.
However, this optimism has been tempered by threats of increased tariffs from U.S. President-elect Donald Trump, which have strengthened the dollar and limited overall gains in oil prices.
Concerns regarding Fed rate cuts
Concerns regarding the U.S. Federal Reserve’s potential decision to refrain from cutting interest rates at its December meeting have also impacted oil price movements, overshadowing positive indicators from China. Last week, oil prices fell more than 3 percent. While Federal Reserve Governor Christopher Waller has indicated support for another rate cut this month, Atlanta Federal Reserve President Raphael Bostic has stressed the need to consider upcoming jobs data. Meanwhile, New York Fed President John Williams has noted that he expects the central bank to gradually adopt a more neutral policy stance.
