Oil prices experienced a modest increase in early Asian trade on Wednesday following indications of a reduction in US crude inventories over the past week. However, traders remained on edge due to the anticipation of further developments in global interest rates.
Despite concerns that rising interest rates would negatively impact economic activity and diminish crude demand, crude prices had been enduring substantial losses in the previous five sessions.
Despite signs of tightening immediate supply and some resilience in the US economy, the oil markets have continued to suffer this year due to worsening economic conditions globally.
During the evening, Brent oil futures rose by 0.2% to reach $72.63 per barrel, while West Texas Intermediate crude futures also increased by 0.2% to reach $67.80 per barrel. These gains come after both contracts experienced a nearly 7% decline, equivalent to around $5, during the last five sessions.
US crude inventories expected to decline as summer demand rises
Encouraging news for the oil markets arrived as data from the American Petroleum Institute (API) revealed a larger-than-expected decrease of 2.4 million barrels in US oil inventories for the week ending on June 23. This figure surpassed the projected draw of 1.76 million barrels.
The substantial drop in gasoline inventories suggests an improvement in fuel demand from the world’s largest oil consumer during the travel-intensive summer season.
Typically, the API data sets the stage for similar inventory readings from the Energy Information Administration, which is expected later in the day. A decrease in inventories indicates some tightening in US supplies, particularly as near-term demand continues to improve.
This data arrives in the wake of a brief clash between Russia and the mercenary group Wagner, raising concerns about potential disruptions in global oil supplies. However, the clash appears to have been short-lived.
Anxieties about interest rates persist ahead of speeches by Powell and Lagarde
Despite signs of tightening supplies, oil prices continue to face significant losses due to fears of rising interest rates in the United States and Europe.
Later in the day, central bank leaders Jerome Powell and Christine Lagarde are scheduled to speak at a European Central Bank forum. Both are expected to express a hawkish outlook on interest rates.
Powell had already cautioned last week that the Federal Reserve may raise interest rates at least twice more this year, while Lagarde also hinted at additional rate hikes on Tuesday.
The possibility of increasing interest rates, coupled with deteriorating economic conditions worldwide, has exerted substantial pressure on oil prices throughout the year, despite repeated production cuts in Saudi Arabia and tightening supplies.
Data released on Wednesday also revealed a continued decline in Chinese industrial profits this year, raising concerns about weak fuel demand from the world’s largest oil importer.
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