- Crude inventories in the US fell by 2 million barrels in the last week.
- The Biden administration announced more sanctions on Russia.
- The US CPI increased by 0.4% on a monthly basis and 2.9% annually, as expected.
Oil prices eased on Thursday after reaching new highs in the previous session due to an unexpected draw in US crude inventories. At the same time, the Biden administration announced more sanctions on Russia that could tighten supply. Meanwhile, a ceasefire deal in Gaza weighed on prices.
WTI vs crude stocks (Source: Nymex, EIA)
Data on Wednesday revealed that crude inventories in the US fell by 2 million barrels in the last week. Meanwhile, economists had expected a smaller decline of 992,000 barrels. The big draw came as exports surged and imports fell. Moreover, it indicated an increase in demand, boosting oil prices.
Elsewhere, the Biden administration announced many sanctions on Russia due to the ongoing war in Ukraine. In the past, Russia has found ways to evade these sanctions. Nevertheless, they are meant to weaken its military operation in Ukraine to end the war. Since Russia is a major oil producer, the sanctions also result in tighter supply, supporting oil.
Elsewhere, market participants absorbed US data showing softer-than-expected underlying inflation. The CPI increased by 0.4% on a monthly basis and 2.9% annually, as expected. Meanwhile, core inflation increased by 0.2%, below the forecast of 0.3%. This report increased expectations for Fed rate cuts in 2025, boosting oil.
Nevertheless, other reports in the previous week revealed a robust economy that could force the Fed to maintain high interest rates. Notably, job growth jumped more than expected in December. At the same time, the unemployment rate eased, indicating a resilient labor market.
Furthermore, analysts predict increased economic growth under Trump’s administration. Therefore, despite the softer inflation numbers, much points to a little monetary easing in 2025. High borrowing costs curb demand, hurting oil prices.
Meanwhile, there was downward pressure on prices after reports of a ceasefire agreement between Israel and Hamas. The war in Gaza has gone on for a long time, keeping a premium on oil due to the risk of escalation. Therefore, an end to the conflict is bearish for oil prices.
Market participants will now focus on Trump’s looming presidency and more data from the US. Notably, in his previous term, Trump called on OPEC to keep oil prices below $80. Any such pronouncements could hurt oil prices.
