- Oil prices dropped by almost a dollar per barrel due to an unexpected increase in US crude stockpiles.
- ECB’s Luis de Guindos stated that the Eurozone may have been in recession last quarter.
- On Tuesday, oil prices rebounded over 2%, driven by the Middle East crisis and a Libyan supply outage.
On Wednesday, US crude oil prices fell sharply due to an unexpected increase in US crude stockpiles. The report raised concerns about demand in the largest oil market.
WTI futures vs crude stockpiles (Source: Bloomberg, EIA)
Despite an initial 1% gain, prices reversed direction following the US Energy Information Administration’s report. There was a surprise build in crude oil stockpiles and larger-than-expected increases in gasoline and distillate storage.
Rob Haworth, senior investment strategist at US Bank Asset Management, noted that the EIA report increases worries about slowing demand growth. In the week ending on 5th January, US crude inventories rose by 1.3 million barrels to 432.4 million. Meanwhile, analysts had expected a 700,000 barrel drop. Moreover, according to the EIA, gasoline stocks increased by 8 million barrels, and distillate stocks jumped by 6.5 million.
Adding to concerns about oil demand was Europe’s weak economic outlook. European Central Bank Vice President Luis de Guindos said the Eurozone may have been in recession last quarter. Additionally, worries about potential oil supply disruptions in the Middle East amid the Israel-Hamas war persisted.
Meanwhile, the White House said the attacks by Yemen-based Houthi militants in the Red Sea were “escalatory. ” Therefore, if they continue, the US will consult with its partners on the next steps. Thomas Wash, market strategist at Confluence Investment Management, stated that traders are weighing the potential impact of growing geopolitical risk and slowing economic growth on commodity prices.
On Tuesday, the US Energy Information Administration projected that US crude production would reach record levels over the next two years. However, this will happen at a slower growth rate as efficiency gains offset a decline in rig activity.
Moreover, the EIA warned of heightened tensions in the Middle East and attacks in the Red Sea that might disrupt trade flows and push up prices. On Tuesday, oil prices rebounded over 2%, driven by the Middle East crisis and a Libyan supply shortage.
Meanwhile, the Organization of the Petroleum Exporting Countries and its allies cut their output to boost oil prices. However, a Reuters survey indicated that OPEC‘s oil output rose in December due to increases in Nigeria, Iraq, and Angola.
