Oil prices experienced a slight decline on Wednesday as investors locked in profits following earlier gains driven by tighter U.S. crude supplies and China’s commitment to bolster its economic growth.
Brent futures showed a 17-cent dip, settling at $79.46 per barrel, while U.S. West Texas Intermediate (WTI) crude dropped by 40 cents, reaching $75.35 per barrel.
During the session, prices gave up some of their gains, having surged by more than $1 per barrel. Market analysts attributed this to participants seizing the opportunity to capitalize on higher prices and secure profits, according to Phil Flynn, an analyst at Price Futures Group.
Moreover, the strength of the U.S. dollar index contributed to the downward pressure on prices, as a stronger dollar makes crude more expensive for investors using other currencies.
However, the losses were limited as U.S. crude inventories experienced a decline of 708,000 barrels in the last week, reaching 457.4 million barrels. This figure differed from analysts’ expectations in a Reuters poll, which projected a drop of 2.4 million barrels, as reported by Energy Information Administration data on Wednesday.
The data also revealed an increase in inventories in the Strategic Petroleum Reserve for the first time since January 2021. The U.S. aims to replenish the reserve after last year’s record drawdown.
According to Flynn, this marks “the end of an era,” as the SPR releases have ceased, resulting in a more stable market.
On the demand side, China’s top economic planner pledged to introduce policies to “restore and expand” consumption in the country, potentially boosting oil demand.
In response to U.S. data showing lower-than-expected retail sales in June, there are speculations that the Federal Reserve will halt its interest rate hikes. The possibility of higher interest rates can increase borrowing costs, potentially slowing economic growth and reducing oil demand.
Furthermore, European Central Bank governing council member Klaas Knot hinted that rate hikes beyond the ECB’s upcoming meeting were “by no means a certainty,” providing a positive signal for the market.
Traders have become more optimistic as inflation eases off, which could lead to an improvement in oil demand, according to Naeem Aslam of Zaye Capital Markets.
In addition to these factors, Russia plans to reduce its oil exports by 2.1 million metric tons in the third quarter, aligning with the country’s voluntary export cuts of 500,000 barrels per day scheduled for August, according to the Russian energy ministry.
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