In Asian trade on Wednesday, oil prices remained stagnant or dipped, impacted by industry data that revealed an unforeseen increase in US inventories. Additionally, weak economic indicators from the United States and China further undermined the demand outlook.
The American Petroleum Institute’s data disclosed that US crude inventories surged by approximately 3.7 million barrels during the week ending on May 12, contradicting expectations of a drawdown of 1.3 million barrels. However, gasoline and distillate inventories experienced a notable decline.
Typically, this data foreshadows a similar trend in the official reading to be released later on Wednesday, highlighting that oil supply in the largest consumer nation remains bloated. It is worth noting that the Strategic Petroleum Reserve (SPR) also played a role in the inventory build-up.
The decrease in gasoline and distillate inventories indicated an improvement in demand as the summer season approaches, which typically witnesses increased air and road travel.
Nevertheless, other indicators from the United States indicated worsening economic prospects for the year. Retail sales for April fell short of expectations, while industrial production remained sluggish. These factors, along with heightened market uncertainty regarding raising the US debt ceiling, exerted downward pressure on crude prices.
At 20:57 ET (00:57 GMT), Brent oil futures slid by 0.1% to $74.52 per barrel, while West Texas Intermediate crude futures dropped by 0.6% to $70.47 per barrel. Both contracts had experienced a decline of about 0.7% on Tuesday.
On Tuesday, a recovery in crude prices was interrupted by weaker-than-anticipated retail sales and industrial production data from China. Concerns arose among investors about the prospects of a demand recovery in the world’s leading oil importer.
A series of lackluster economic readings this month suggested that China’s post-COVID rebound might be losing momentum, leading to doubts about the country’s ability to drive oil demand to new heights this year.
Consequently, traders largely overlooked the forecasts from the International Energy Agency and the Organization of Petroleum Exporting Countries, which projected record-high crude demand for this year.
Despite the US government’s plans to refill the Strategic Petroleum Reserve, the impact on oil prices this week was limited. The initial purchase of 3 million barrels, as indicated by the government, represents only a fraction of the world’s daily consumption.
A rebound in the value of the dollar also hampered crude prices following a series of hawkish statements from Federal Reserve officials concerning monetary policy. These statements were driven by persistently high inflation levels that exceeded the Federal Reserve’s annual target of 2%.
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