- US gasoline stocks rose by 6.3 million barrels last week.
- Oil output from OPEC member countries dropped in December.
- Oil prices fell on Wednesday due to a strong dollar.
Oil prices plunged over 1% on Wednesday due to a strong US dollar and a bigger-than-expected increase in US gasoline inventories. The dollar strengthened after reports that Trump would take aggressive measures to ensure his tariff policies are implemented.
Data on Wednesday from the Energy Information Administration revealed that gasoline stocks rose by 6.3 million barrels compared to estimates of a 1.5 million barrel increase. This report indicated weak demand for fuel last week. On the other hand, crude inventories fell by 959,000 barrels. Economists had expected a smaller drop of 184,000 barrels. Recent figures have shown weaker oil demand, which has weighed on prices.
On the supply side, data showed that oil output from OPEC member countries dropped in December. Russia produced 8.97 million barrels daily, below the country’s target. This news is bullish for oil since a decline in supply tightens the market. However, experts predict lower prices in the future due to a surge in supply from producer countries that are not members of OPEC.
Furthermore, oil prices fell on Wednesday due to a strong dollar. A rally in the greenback makes oil expensive for foreign buyers and reduces demand. The dollar has had a strong week due to upbeat economic data, which has solidified expectations for a gradual Fed easing cycle in 2025.
Since the week began, economic reports from the US have mostly painted a picture of resilience. Business activity in the services sector improved, with the PMI coming in at 54.1, compared to forecasts of 53.5. Another report showed an unexpected surge in job vacancies, indicating robust demand in the labor market.
US jobless claims (Source: US Labor Department)
Finally, unemployment claims fell, further suggesting labor market strength. Claims have dropped since the start of the year. However, private job growth came in slower than expected. The upbeat economic data lowered expectations for rate cuts in 2025.
Fed policymakers already predicted just 50-bps of cuts this year. However, recent data has pushed traders to price only 38-bps of rate cuts. High borrowing costs are bearish for oil since demand for fuel drops. Market participants are now looking forward to the nonfarm payrolls report.
The dollar also rose due to reports that Trump might declare a national emergency to allow his administration to implement tariffs on imported goods.
