Crude Oil Futures
Fundamental Analysis

Oil Prices Take a Dive as Crude Inventories Soar

  • A drop in US refining led to a bigger-than-expected build in inventories.
  • There were demand concerns after a warning in the US of a possible security threat.
  • OPEC maintained its outlook for global oil demand growth in 2024 and 2025.

Oil prices fell on Wednesday due to a surge in crude inventories. When fuel stocks in the US increase, it is a sign that demand has dropped. 

WTI futures (Source: Bloomberg, EIA)

WTI futures (Source: Bloomberg, EIA)

Moreover, a drop in refining in the US led to a bigger-than-expected build in inventories. US refining slowed significantly during the cold weather. Since then, it has not yet recovered to its full capacity.

Meanwhile, concerns were fueled by a US warning of a possible security threat. Any such occurrence would weigh heavily on oil prices, affecting demand.

Additionally, there were concerns in the market about continued high-interest rates in the US. The US Consumer Price Index report released on Tuesday revealed higher-than-expected inflation figures. Consequently, there was a drop in bets for Fed rate cuts and a surge in the dollar.

Markets now believe the Fed will likely start cutting interest rates in June, compared to earlier expectations of March. Therefore, high interest rates will stay as long as inflation remains stubborn and the economy is resilient. High borrowing costs translate to less business activity and a drop in oil demand.

Meanwhile, the recent surge in the dollar after the inflation report affected demand by increasing the fuel cost for foreign buyers.

Elsewhere, there was some bullish support after OPEC maintained its outlook for global oil demand growth in 2024 and 2025. Moreover, the organization increased its forecast for economic development in both years. At the moment, OPEC has the highest demand growth forecast.

Meanwhile, geopolitical tensions continue to support oil prices. Tensions in the Middle East, with the ongoing Hamas war and the Russia-Ukraine war, have disrupted supply in the market. Russia is starting to feel the impact of US sanctions as demand declines. Notably, the country tried to end the war with Ukraine by calling for a ceasefire. However, the US rejected this offer, dimming any hopes for peace. 

Meanwhile, talks for a Gaza truce flopped in the Middle East without agreement. Israel plans to continue with its attacks on Gaza. Additionally, strikes on vessels in the Red Sea have continued, increasing oil supply worries.