Crude oil price extended Tuesday’s losses as the market reacted to the surprise build in inventories. Even so, optimism over oil demand continues to render support to the commodity.
WTI futures- the benchmark for US oil – is set for its weekly gain after failing to gather enough bullish momentum in the year’s first week to break the resistance at $80. As at the time of writing, it was at $74.31; down by 0.5%. At the same time, Brent oil was down by 0.29% at $79.31.
Crude oil inventories
As aforementioned, the massive increase in weekly inventories is largely behind the recorded decline in prices. Data released by the American Petroleum Institute (API) showed that last week’s stockpiles rose by four times from the previous week. Indeed, the figures missed investors’ expectations that were founded on the assertion that refiners would be keen on building on product supply.
According to API, US crude oil inventories increased by 14.865 million barrels for the week that ended on 6th January. This was a significant surge from the build of 3.298 million barrels reported in the previous week. Notably, there had been two concurrent weeks of inventory draws since mid-December. API’s report also showed an increase in gasoline and distillate stocks by 1.8 million and 1.1 million barrels respectively.
Later on Wednesday, crude oil price will be reacting to the official government’s data. The Energy Information Administration (EIA) reported a decline of 2.243 million barrels in the previous week.
On the one hand, a build in crude oil stockpiles has placed prices in the red for the second session in a row. Even so, optimism over oil demand has the futures set for a weekly gain.
In particular, China’s reopening has investors hopeful over the country’s economic recovery and subsequent surge in crude oil prices. This is founded on the fact that the Asian nation is the leading importer of crude oil globally. Indeed, hopes over the recovery of China and India’s economies has the US government expectant that global petroleum demand will reach a fresh record high in the current year.
At the same time, the Federal Reserve’s monetary policy continues to influence crude oil demand in the US and beyond. On the one hand, the persistently high inflation has the markets uncertain on the path that the central bank will take in coming months. Nonetheless, there’s some hope that the bank will eventually take a dovish stance as inflation eases and the labor market cools. As such, the US CPI data scheduled for Thursday will avail cues on the health of the economy and prospects of oil demand by extension.