An increase in US oil reserves has caused oil prices to fall in early trading on Wednesday, breaking a three-day rally.
This unexpected climb in US crude stockpiles from last week has resulted in concerns about energy demand in the country, with investors eagerly awaiting the release of US inflation data to determine the Federal Reserve’s next interest rate decision.
Brent North Sea crude fell by 0.7% to $76.92 a barrel, while US West Texas Intermediate crude oil dropped 0.7% to $73.22 a barrel. Statistics indicate a drop in energy demand in the largest economy in the world due to the American Petroleum Institute reporting that US crude oil inventories rose by 3.6 million barrels in the week ending May 5th, with gasoline inventories increasing by 399,000 barrels.
The US government is set to release their data on oil inventories on Wednesday. Analysts predicted that US crude oil reserves would decline by 900,000 barrels during this timeframe; however, the sudden growth in US stockpiles, as well as decreasing crude oil imports and a more balanced growth in Chinese exports in April, have raised concerns about global oil demand. Priyanka Sachdeva, an analyst at Phillip Nova Pte Ltd, stated, “Oil investors should be on the lookout for clues about the economic health of the US economy, which I think looks pretty bleak right now.” Also, New York Federal Reserve President John Williams mentioned that inflation is still too high and that the central bank will raise interest rates again if necessary.
The market is anticipating the monthly oil report from the Organization of the Petroleum Exporting Countries (OPEC), which is due on Thursday, to determine whether the group and its allies need to cut production again to bolster prices. Last month, OPEC+ agreed to reduce production by 1.16 million barrels per day from May until the end of the year. According to reports from the media, Russia’s energy ministry announced that the country’s oil production cuts have nearly met the levels targeted in April. Saudi Arabia, which had promised to cut its output by 500,000 barrels per day starting in May, has informed Asian buyers that it will supply the full volume of crude requested in June. Some Chinese refiners may require less supply, which could aid the world’s largest oil exporter in reaching its reduced production target. Alberta wildfires have forced Canadian oil and gas producers to shut down at least 319,000 barrels of oil equivalent per day, equivalent to 3.7% of the country’s production.