Oil prices rose modestly on Wednesday, recovering from recent losses. This was driven by expectations of tight near-term markets, as evidenced by industry data showing a draw in U.S. inventories.
Concerns over longer-term outlook
However, oil prices had experienced steep losses in recent sessions. The outlook for crude had soured, with forecasts pointing to a surplus in 2025. Concerns over top oil importer China and speculation around an Israel-Hamas ceasefire also weighed on crude markets.
Brent and WTI futures inch higher
Brent oil futures for September delivery rose 0.5 percent to $81.40 per barrel, while West Texas Intermediate crude futures gained 0.4 percent to $76.22 per barrel by 21:02 ET (01:02 GMT). Both contracts had previously tumbled to their weakest levels since early-June, with the strong U.S. dollar also putting downward pressure on crude prices.
Inventory data shows drawdowns
Data from the American Petroleum Institute (API) showed U.S. oil inventories declined by 3.9 million barrels (mb) in the week to July 19, defying expectations for a 0.7 mb build. This was the fourth consecutive week of inventory drawdowns, likely due to increased oil demand during the peak summer travel season.
Demand remains robust
The API data also indicated drops in gasoline and distillate inventories, suggesting robust demand from the world’s largest fuel consumer. This trend was expected to keep oil markets tight in the near term. Official inventory data from the Energy Information Administration was due later on Wednesday.
Read more: Oil prices fall to 1.5-month low amid weak outlook and surplus concerns
Expectations of easing tightness
However, the tightness in oil markets was anticipated to ease in the coming months. Morgan Stanley forecast an oil surplus by the start of 2025, with crude prices expected to trend in the high $70s per barrel by next year. Increased global oil production, combined with the prospect of softer demand in China, was set to improve the supply-demand balance.
Concerns over China’s economy
China has been a major concern for crude markets, as uncertainty persisted over the country’s economic recovery. Recent data showed weaker-than-expected economic growth in the second quarter, and a sharp drop in oil imports in June. The latest political developments, including the Third Plenum of the Chinese Communist Party, offered few clear signals on Beijing’s plans for further stimulus.
Sentiment towards China was also strained by uncertainty over how a change in the U.S. administration might affect Washington’s stance towards the country.
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