In Asian trade on Wednesday, oil prices dipped as industry data revealed an unforeseen increase in U.S. inventories, while lingering apprehensions regarding elevated U.S. interest rates further subdued market sentiment.
The downward trajectory marked the fourth consecutive session of losses, driven by apprehensions of subdued demand alongside easing worries over geopolitical tensions in the Middle East, which prompted selling. Additionally, waning optimism surrounding China’s economic rebound contributed to dampened sentiment in oil markets.
Brent oil futures expiring in July witnessed a decline of 0.6% to $82.40 a barrel, while West Texas Intermediate crude futures fell 0.7% to $78.13 a barrel by 21:05 ET (01:05 GMT).
Unexpected Build in U.S. Inventories – API
Data released by the American Petroleum Institute on Tuesday disclosed a surprising growth of 2.5 million barrels (mb) in U.S. oil inventories for the week ending May 17, surpassing expectations of a drawdown of 3.1 mb. Gasoline stockpiles also expanded by 2.1 mb, while distillate inventories experienced a decrease of 320,000 barrels, as per the API findings.
The unanticipated rise in inventories stirred concerns regarding sluggish U.S. oil demand, particularly in terms of fuel consumption. Typically, the API data foreshadows a similar outcome in official inventory reports, scheduled for release later on Wednesday.
Anticipated Boost in U.S. Fuel Demand
Despite current apprehensions, U.S. fuel demand is anticipated to surge in the forthcoming weeks, buoyed by the approaching Memorial Day holiday, which traditionally heralds the commencement of the travel-intensive summer season. However, apprehensions persist among traders that persistent inflationary pressures and high interest rates could potentially curtail demand in the months ahead.
Rate Hike Fears Loom Ahead of Fed Minutes
A string of cautious remarks from Federal Reserve officials this week exacerbated market anxieties, with concerns mounting that sustained high interest rates could erode demand throughout the year. Fed officials emphasized the necessity for heightened confidence in inflation moderation before contemplating interest rate adjustments.
The release of the minutes from the Fed’s late-April meeting, scheduled for later on Wednesday, is poised to offer additional insights into the central bank’s stance on rate adjustments. The bolstering of the dollar ahead of the minutes further exerted downward pressure on oil prices.
OPEC+ Meeting Eyed for Production Cut Signals
In addition to Federal Reserve deliberations, market focus remains fixed on an upcoming meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+), slated for early June. Observers eagerly await indications of whether the cartel will prolong its ongoing production cuts, shaping future market dynamics.
