The oil market received a much-needed boost on Wednesday as oil prices edged up following a larger-than-expected drop in U.S. inventories.
This decline indicated robust demand and provided some respite from concerns over potential interest rate hikes.
Market sources revealed that crude stocks had fallen by approximately 2.4 million barrels, based on data from the American Petroleum Institute (API).
Although the official supply report from the Energy Information Administration was yet to be released, the preliminary figures were already instilling optimism among traders.
Brent crude, the international benchmark, saw a modest gain of 9 cents or 0.1% increase to settle at $72.35 per barrel at 8 am Nigerian time. Simultaneously, West Texas Intermediate (WTI) U.S. crude experienced a more substantial uptick of 26 cents or 0.4% rise close at $67.96 per barrel.
The positive sentiment among market participants was echoed by Tamas Varga, an oil broker from PVM, who stated, “This morning relief comes from last night’s API stats.”
Looking beyond the immediate market dynamics, the year has presented challenges for oil prices. Brent crude has experienced a 15% decline since the start of the year, primarily due to concerns over rising interest rates impacting investor appetite.
Similarly, China’s economic recovery has faltered, showcasing months of softer-than-expected consumption and other economic indicators.
Just yesterday, European Central Bank President Christine Lagarde emphasized that stubbornly high inflation would necessitate the bank’s caution in declaring an end to rate hikes.
The recent rise in U.S. consumer confidence in June further fueled concerns that the Federal Reserve may need to continue raising interest rates.
Nonetheless, there are still expectations that the oil market will tighten in the second half of 2023. This optimism is partly driven by ongoing supply cuts by the OPEC+ alliance and Saudi Arabia’s voluntary production reduction for July.
Even Saudi Aramco, the world’s largest oil company, expressed confidence in the market’s fundamentals, stating that they remain “sound” for the latter part of the year.