Oil prices declined on Thursday as investors processed data revealing an unexpected rise in U.S. product inventories, compounded by disappointing economic indicators from China, the world’s leading oil importer.
Crude prices faced additional pressure from a strengthening dollar, reflecting hawkish signals from the Federal Reserve that intensified speculation about a much slower pace of interest rate cuts in 2025. Brent crude futures for March delivery decreased by 0.5 percent, settling at $75.79 per barrel, while West Texas Intermediate crude futures also fell by 0.5 percent, reaching $72.30 per barrel by 20:49 ET (01:49 GMT).
China’s inflation readings
In December, China’s inflation readings remained subdued, with the consumer price index showing little change. Meanwhile, the producer price index experienced a decline for the 27th consecutive month, according to data released on Thursday. This suggests minimal progress in China’s ongoing disinflationary trend, despite the government implementing its most aggressive stimulus measures to date, set to run through late 2024. As the largest oil importer globally, China remains a significant concern for crude markets, as traders worry that the nation’s weak economic growth could negatively impact oil demand.
The situation is further complicated by potential economic challenges from the incoming administration of Donald Trump in the U.S., who has promised to impose substantial trade tariffs on China.
U.S. crude inventories decrease
Overall U.S. crude inventories decreased, but by less than anticipated, dropping by 0.96 million barrels compared to the expected 1.8 million barrels. This marked the eighth consecutive week of significant product builds, raising concerns about cooling demand in the world’s largest consumer of fuel. Although cold weather in the U.S. stimulated some heating demand, it also disrupted holiday travel in various regions.
Read more: Oil prices rise to $77.41 amid 4 million barrels drop in U.S. inventories
Strength of the dollar
The robust dollar weighed on crude prices as it climbed to more than two-year highs, driven by the Federal Reserve’s hawkish stance. A strong dollar typically diminishes oil demand by making crude more expensive for international buyers.
Earlier in the week, oil prices had seen an upswing, continuing their rebound from the previous session, as U.S. industry data indicated a notable decline in oil inventories alongside perceived reductions in production from OPEC nations. Prices have gained momentum this week due to ongoing signs of resilience in the U.S. economy, along with trader expectations that cold weather in both the U.S. and Europe would increase demand.
Brent oil futures for March delivery rose by 0.5 percent to $77.41 a barrel, while West Texas Intermediate crude futures also increased by 0.5 percent to $73.97 a barrel by 20:37 ET (01:37 GMT). Both contracts are approaching their highest levels since mid-October.
API inventory data
According to the American Petroleum Institute, U.S. oil inventories dropped significantly, decreasing by more than 4 million barrels in the week ending January 3, far exceeding expectations of a 250,000-barrel draw. This marked the second week in a row of inventory reductions, driven by increased travel during the year-end holiday season. Additionally, cold weather from a polar vortex is expected to raise demand for distillates, particularly heating oil.
OPEC production changes
Data from Reuters highlighted that oil production among OPEC member states fell in December, impacted by maintenance activities in the United Arab Emirates, which offset a production increase in Nigeria. Bloomberg reported that Russia’s oil output fell below its December target of 8.978 million barrels per day.
Delays in production increases
OPEC and its allies have delayed any production increases until at least the second quarter of 2025 due to ongoing weakness in oil prices. Concerns about diminishing demand in China, combined with strong production from non-OPEC sources, have placed additional pressure on oil prices, which have declined by approximately 3 percent in 2024.
