Oil prices faced a second-day drop on Wednesday due to the overwhelming signs of surplus U.S. supplies and expectations of increased interest rates, which reduced the losses in the market.
The U.S. crude stock numbers surpassed the anticipated figures with an increment of 10.5 million barrels, which indicated that the U.S. is “swimming in oil.”
Brent crude oil, against which Nigerian oil is priced, declined by 0.5% to $85.13 a barrel, while U.S. West Texas Intermediate (WTI) crude slipped by 0.6% to $78.57, down by more than a dollar in earlier trading. These drops came as a result of the potential tightening of the market and the increased demand growth forecasts for 2023.
On the other hand, U.S. inflation data and comments from central bank officials indicating that interest rates would increase for a longer period also weighed heavily on the market.
This week, the U.S. announced the sale of 26 million barrels of oil from the nation’s strategic reserve, which already stands at its lowest level in four decades. The announcement is expected to put more pressure on crude prices. The surplus in U.S. crude stock numbers and the sale of the strategic reserve could lead to further market disruption.
However, the International Energy Agency (IEA) reported a forecast for a 2023 increase in oil demand growth, which could counterbalance the oversupply situation. The restrained OPEC+ production, coupled with the shut-in production from OPEC+ member Russia, could cause a supply deficit in the second half of the year.
The IEA predicts that about 1 million barrels per day (bpd) of production from Russia will be shut in by the end of the first quarter due to a European ban on seaborne imports and a G7 price cap over the invasion of Ukraine.
OPEC also raised its projection for global oil demand growth, which could indicate a tighter market in 2023. However, there is still much uncertainty about the future of the oil market, and investors need to remain cautious.
The oversupply situation in the U.S. crude market is likely to continue, but the OPEC+ production cuts and the shut-in production from Russia could counterbalance the oversupply situation in the second half of 2023.
The increase in oil demand growth forecasted by the IEA and OPEC also provides some hope for a potentially tighter market. Nevertheless, investors must keep a watchful eye on the market as it remains volatile, and the future remains uncertain.