Oil prices experienced an uptick on Wednesday, continuing a rebound from the previous session as U.S. industry data indicated a significant reduction in oil inventories, alongside a perceived decline in production from OPEC nations.
This week, prices have gained traction due to ongoing indicators of resilience within the U.S. economy, coupled with trader expectations that cold weather in both the U.S. and Europe will boost demand.
Brent oil futures for March delivery increased by 0.5 percent to $77.41 a barrel, while West Texas Intermediate crude futures also rose by 0.5 percent to $73.97 a barrel by 20:37 ET (01:37 GMT). Both contracts are nearing their highest levels since mid-October.
Read more: Oil prices decline to $76.22 as economic data overshadows supply concerns
U.S. inventory dropped sharply – API
Data released by the American Petroleum Institute on Tuesday revealed that U.S. oil inventories fell by more than 4 million barrels in the week ending January 3, significantly exceeding expectations of a 250,000-barrel draw. This marked the second consecutive week of inventory reductions, as the world’s largest fuel consumer experienced increased travel during the year-end holiday season. Additionally, cold weather resulting from a polar vortex is anticipated to drive up demand for distillates, particularly heating oil.
Typically, the API data precedes a similar report from the government, which is scheduled for release later on Wednesday. The decrease in inventories points to tighter oil supplies in the U.S. and suggests robust demand within the country.
According to data from Reuters, oil production among OPEC member countries decreased in December, influenced by maintenance activities in the United Arab Emirates that countered a production surge in Nigeria. Bloomberg’s data indicated that Russia’s oil production fell below its December target of 8.978 million barrels per day.
OPEC and its allies have postponed any production increases until at least the second quarter of 2025, amidst ongoing oil price weakness. Concerns regarding slowing demand in China, paired with strong production from outside OPEC, have pressured oil prices, alongside recent strength in the dollar. Oil prices lost approximately 3 percent in 2024.
Market reactions and anticipated data
Oil prices declined on Tuesday, marking a second straight day of losses following a surge the previous week. This downturn occurred despite worries about tighter supplies from Russia and Iran due to expanding Western sanctions, which have somewhat alleviated the price drops. Brent crude futures fell by 8 cents, or 0.1 percent, to $76.22 per barrel at 0452 GMT, while U.S. West Texas Intermediate (WTI) crude dropped by 15 cents, or 0.19 percent, to $73.42.
Both benchmarks faced a setback on Monday after a five-day rally peaked on Friday with prices reaching their highest levels since October. This surge was driven by expectations of additional fiscal stimulus aimed at revitalizing China’s struggling economy.
“This week’s weakness is likely due to a technical correction, as traders react to softer economic data globally that undermines the optimism seen earlier,” reported Reuters, citing Priyanka Sachdeva, a senior market analyst at Phillip Nova. She pointed to bearish economic news from the U.S. and Germany as influential factors.
Moreover, the increasing supply from non-OPEC nations, coupled with sluggish demand from China, is expected to ensure that the oil market remains well-supplied throughout the year.
