- Tuesday saw a significant decline in oil of more than 3% following Powell’s speech.
- A higher dollar also restrained oil prices.
- US oil stockpiles decreased by 1.7 million barrels last week.
Wednesday saw a decline in oil prices due to concerns over the impact of more aggressive interest rate increases on the US economy and oil demand. The concerns overshadowed a larger-than-expected drop in US crude inventories.
Tuesday saw a decline in oil of more than 3% following remarks made by Jerome Powell, the chairman of the Federal Reserve. Powell said that the central bank would probably need to hike interest rates more than anticipated in response to recent positive data.
Early in the session, oil prices were also restrained by a higher dollar. In response to Powell’s remarks, the US dollar, which usually trades in opposite to the price of oil, surged to a three-month high against a basket of currencies.
According to government data, US oil stockpiles decreased by 1.7 million barrels last week compared to analyst expectations for a gain of 395,000. Late on Tuesday, industry data revealed a first-time drop in crude inventories following a 10-week rise.
Official data show that US gasoline inventories decreased by 1.1 million barrels, which is less than the 1.8 million projected and adds to concerns about demand. Contrary to estimates for a one million-barrel draw, the distillate inventories increased by 138,000 barrels.
Barclays reduced its 2023 forecasts for Brent by $6 to $92 per barrel and WTI by $7 to $87, partly because Russian supplies have proven more resilient than expected.
The bank estimates the oil market balance will go into deficit later this year. This is due to the sustained recovery in civil aviation demand in China and adjacent countries, a stabilization in industrial activity, and slower non-OPEC+ supply growth.
At a conference in Houston, oil ministers and executives continued to discuss the tight supply. Angola’s secretary of state for gas and oil stated that the Organization of the Petroleum Exporting Countries did not need to boost production to compensate for Russia’s 500,000 barrel per day decrease.
Meanwhile, several senators from both parties in the US have announced that they have renewed legislation to put pressure on OPEC to stop reducing output.
According to US Energy Secretary Jennifer Granholm, any additional releases from the Strategic Petroleum Reserve would be prompted by disturbances like the conflict in Ukraine.