Oil prices climbed on Wednesday, buoyed by industry data indicating a larger-than-anticipated drawdown in U.S. stockpiles. Additionally, softer-than-expected inflation data fueled hopes of more aggressive interest rate cuts.
Sentiments in the oil market remained on edge as traders anticipated heightened geopolitical tensions in the Middle East.
Brent crude oil futures for the October delivery rose 0.5 percent to $81.09 per barrel, while West Texas Intermediate (WTI) crude futures gained 0.5 percent to $77.21 per barrel by 20:58 ET (00:58 GMT).
Robust demand amid summer travel slowdown
Data from the American Petroleum Institute showed that U.S. oil inventories shrank by 5.2 million barrels in the week ending August 10, significantly more than the expected draw of 2 million barrels.
Gasoline inventories contracted, while distillate inventories saw a modest build.
This reading, which typically precedes a similar finding from official inventory data, suggested that demand remained robust in the world’s largest fuel consumer, even as the peak travel season of the summer came to an end.
The data helped oil bulls overlook a recent reduction in the Organization of the Petroleum Exporting Countries’ (OPEC) outlook for demand growth in 2024, and also alleviated concerns that slowing U.S. economic growth would dampen demand.
Furthermore, the International Energy Agency (IEA) had also trimmed its 2024 oil demand forecast earlier this week.
Read more: Oil prices decline as OPEC lowers 2024 demand forecast amid China slowdown
Expectations for deeper Fed rate cuts
On the U.S. economic front, softer-than-expected producer price index data on Tuesday amplified hopes that inflation was cooling, thereby providing the U.S. Federal Reserve with more impetus to implement deeper interest rate cuts.
This reading arrived just ahead of the consumer price index (CPI) inflation data, which is due for release later on Wednesday and is also expected to show a slight easing of inflation in July.
The prospect of interest rate cuts presents a more favorable outlook for the U.S. economy, especially amidst recent concerns that slowing growth may necessitate further rate cuts from the Fed.
Following Tuesday’s data, traders leaned more towards a 50 basis point cut in September rather than a 25 basis point cut, according to CME Fedwatch.
In addition to the inflation data, this week will also feature industrial production and retail sales readings from both the U.S. and China.
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