Oil prices experienced an increase on Wednesday, supported by industry data that revealed a significant and unexpected decrease in U.S. inventories. Furthermore, the OPEC maintained its projection for robust demand growth in the upcoming years.
By 02:05 ET (06:15 GMT), Brent oil futures expiring in May climbed by 0.8 percent to reach $82.56 per barrel, while West Texas Intermediate (WTI) crude futures rose by 0.8 percent to $77.88 per barrel. Despite these recent gains, crude prices remained within the $75 to $85 per barrel trading range, with limited indications regarding supply and demand. The economic weakness of China, a major importer, continued to be a subject of concern for the oil market.
Read more: Oil prices show modest rise amidst cautious market sentiment
The strength of the U.S. dollar, driven by stronger-than-anticipated U.S. inflation data, also exerted downward pressure on crude prices. However, ongoing disruptions in the Middle East maintained the risk of potential supply shocks, preventing any significant weakness in crude prices.
The American Petroleum Institute (API) reported that U.S. inventories unexpectedly decreased by 5.5 million barrels in the week ending March 8. This contrasted with expectations of a 0.4 million barrel build. The drawdown occurred as local refiners resumed production after an extended winter break, indicating some near-term tightness in the U.S. oil markets. However, this tightness is expected to remain limited due to sluggish local fuel demand following a winter lull. The API data typically aligns with the official inventory data, which is set to be released later on Wednesday.
The positive news of reduced U.S. inventories was somewhat offset by the Energy Information Administration (EIA) increasing its oil production outlook for 2024 by 260,000 barrels per day, reaching 13.19 million barrels.
OPEC’s demand forecast and production cut strategy
Regarding demand, the Organization of Petroleum Exporting Countries (OPEC) maintained its forecast of a 2.25 million barrel per day increase in global oil demand for 2024, as well as a 1.85 million bpd increase for 2025. The cartel attributed this projection to the eventual reduction in interest rates and improvements in global economic conditions throughout the year. OPEC recently announced that it would continue its current pace of production cuts until the end of June. Coupled with potential supply disruptions in the Middle East, this move is expected to tighten oil markets around the middle of the year.
In addition to OPEC’s monthly report, the International Energy Agency (IEA) is also expected to release its monthly report later this week, which will be closely monitored by market participants.
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