Crude Oil Futures
Fundamental Analysis

Oil Prices Plunge 4% on Surging Gasoline Inventories

  • US data revealed a larger-than-expected increase in gasoline inventories.
  • Moody downgraded China’s A1 rating outlook from stable to negative.
  • In November, US private payrolls increased less than anticipated.

On Wednesday, oil prices dropped by almost 4%, reaching the lowest close since June. Concerns about global fuel demand increased following US data revealing a larger-than-expected increase in gasoline inventories. 

Prices were also impacted by worries about China’s economic health and future fuel demand, worsened by Moody’s downgrade of China’s A1 rating outlook from stable to negative.

The Energy Information Administration reported a significant 5.4 million-barrel rise in US gasoline stocks last week. The figure beat analysts’ expectations by more than five times. Consequently, US gasoline futures plunged to their lowest point in two years. John Kilduff from Again Capital LLC noted poor demand during the Thanksgiving holiday weekend, contributing to the downturn.

Unexpectedly, US crude inventories fell by 4.6 million barrels, exceeding analysts’ expectations of a 1.4 million-barrel drop.

Furthermore, the US dollar reached a two-week high, increasing the cost of oil for holders of other currencies and putting pressure on demand. Despite expectations of interest rate cuts from the US Federal Reserve, the dollar remained steady as rate cut predictions for other central banks increased.

US private employment change (Source: ADP Research Institute)

In November, US private payrolls increased less than anticipated, rising by 103,000 jobs. October’s data was revised lower, showing 106,000 jobs added instead of the previously reported 113,000. 

Following a series of interest rate hikes totaling 525 basis points by the Federal Reserve since March 2022, the labor market is gradually losing momentum. On Tuesday, the government disclosed that job openings dropped to a 2-1/2-year low of 8.733 million in October. This decline resulted in a ratio of 1.34 vacancies for each unemployed person, marking the lowest point since August 2021.

OPEC+ recently agreed on voluntary output cuts of about 2.2 million barrels per day for the first quarter of 2024. Despite these supply curbs, oil prices have slipped nearly 11% since the Nov. 29 close, the day before OPEC+ met.

Russian President Vladimir Putin’s visit to the United Arab Emirates and Saudi Arabia on Wednesday focused on discussions about oil and OPEC+. Saudi and Russian officials suggested that the cuts should prevent a buildup in oil inventories in the first quarter and could be extended or deepened.