Oil prices fell slightly on Wednesday following a significant rise in the previous session, prompted by Israel’s warning of potential military action against Lebanon should the ceasefire fail. However, this upward momentum faced a setback due to industry reports indicating an unexpected increase in U.S. oil inventories. Market sentiment remained jittery ahead of an OPEC+ meeting scheduled for Thursday, where it is anticipated that the cartel will postpone plans to ramp up production.
Despite this, oil prices maintained a degree of risk premium due to ongoing ceasefire violations between Israel and Lebanon. Additionally, rising tensions between Russia and Ukraine kept traders wary. By 20:51 ET (01:51 GMT), Brent oil futures for February delivery dipped 0.1 percent to $73.58 a barrel, while West Texas Intermediate crude futures also fell 0.1 percent to $69.50 a barrel. Both contracts had surged over 2 percent on Tuesday.
The threat of Israeli military action against Lebanon has contributed to rising oil prices, reflecting increased geopolitical tensions in the Middle East.
Read more: Oil prices rise ahead of this week’s OPEC+ meeting
U.S. inventories rise more than anticipated
According to data from the American Petroleum Institute (API), U.S. oil inventories rose by 1.2 million barrels in the week ending November 29, contradicting expectations for a reduction of 2.1 million barrels. This unexpected increase has raised concerns about dwindling demand in the world’s largest fuel consumer, especially with winter approaching. The API data often precedes similar readings from government inventory reports, set to be released later on Wednesday, which could indicate a loosening of supply constraints.
Government data released last Wednesday indicated 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 raised concerns about potential demand slowdowns in the U.S., especially as winter approaches, a season typically associated with reduced travel.
Anticipation surrounding OPEC+ meeting
Market attention is also focused on the upcoming OPEC+ meeting on Thursday, where it is widely believed that the cartel will further delay any plans to increase production. OPEC+ has consistently downgraded its oil demand forecasts for 2024 and 2025, citing worries about slowing growth in major importer China. Any extension of ongoing supply cuts by OPEC could bolster oil prices as we move into 2025 by tightening market conditions.
Oil prices experienced an uptick on Tuesday amid escalating geopolitical concerns in the Middle East and Russia, as traders looked forward to the OPEC+ meeting later this week. As of 6:48 GMT, Brent crude futures rose 0.42 percent to $72.13 a barrel, while U.S. West Texas Intermediate crude futures increased by 0.37 percent to $68.35 per barrel.
China’s oil demand outlook
The outlook for oil demand in China remains weak, with projections indicating a potential peak as early as next year, further widening the gap between supply and demand. Nevertheless, recent positive economic signals from China, the world’s largest oil importer, have lent some support to crude prices. November’s Purchasing Managers’ Index (PMI) data showed an uptick 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, backed by ongoing government support.
However, this optimism has been tempered by threats of increased tariffs from U.S. President-elect Donald Trump, which have bolstered the dollar and limited overall gains in oil prices.
Fed rate cut concerns
Concerns that the U.S. Federal Reserve might refrain from cutting interest rates at its December meeting have also influenced oil price movements, overshadowing positive indicators from China. Last week, oil prices fell more than 3 percent. While Federal Reserve Governor Christopher Waller indicated support for another rate cut this month, Atlanta Federal Reserve President Raphael Bostic emphasized the need to consider forthcoming jobs data. Meanwhile, New York Fed President John Williams remarked that he expects the central bank to gradually shift towards a more neutral policy stance.
