Oil prices experienced a notable increase during Asian trade on Wednesday, propelled by industry data indicating a significant decline in US inventories. This development suggests a tightening of supplies, although persistent concerns remain over the deceleration of economic growth and the possibility of a US debt default.
The American Petroleum Institute (API) reported that US inventories saw their most rapid contraction in nearly six months over the past week, attributed to heightened gasoline demand in anticipation of the travel-intensive summer season. Typically, this reading foreshadows a similar trend in government data scheduled for release later in the day. Combined with indications of disruption in US crude supplies, it points to tighter oil markets in the days ahead.
In the Asian market, Brent oil futures climbed by 1% to reach $77.78 per barrel, while West Texas Intermediate crude futures rose by 1.3% to $73.91 per barrel at 21:41 ET (01:41 GMT). These contracts have recently witnessed significant upswings, tracking the surge in US gasoline futures driven by market speculation on increased fuel consumption during the summer season. Following the API data release, US gasoline futures surged by 2%, reaching a five-week high.
Additionally, oil prices received a boost from a warning issued by the Saudi Arabian energy minister, cautioning against shorting oil. This announcement coincided with the impact of OPEC’s recent production cuts, which, combined with signs of growing demand, elevated expectations of an imminent supply shortage.
Nonetheless, there are ongoing indications of worsening economic conditions. Disappointing readings on manufacturing activity from the US, euro zone, and the UK suggest further economic challenges in the upcoming months, particularly as industrial production experiences a slowdown. These figures follow earlier reports this month on weaker-than-expected Chinese manufacturing activity, which indicated a deceleration in the rebound of the world’s largest oil-importing nation’s economy.
Negotiations between Democrat and Republican lawmakers continued without providing clear indications of an agreement timeline. This occurs just ahead of the June deadline for a potential US debt default, which could have far-reaching implications for the global economy.
Crude prices remain approximately 6% lower for the year, primarily driven by concerns that deteriorating economic conditions will impede a demand recovery.
The strength of the dollar also exerted downward pressure on crude prices. Market participants eagerly awaited further insights into monetary policy from the minutes of the Federal Reserve’s May meeting, scheduled for release later in the day.
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