Oil prices dip on oil product build

Oil prices dipped on Thursday, with WTI price dropping below $71.0 per barrel. If WTI price declines, it may encounter support near $69.1 per barrel, while resistance may be found near $76.0 per barrel.

US crude oil inventories released on Thursday fell short of expectations but failed to provide support for oil prices. The US Energy Information Administration reported a drop in US oil inventories by 5.5M barrels for the week to December 29, dropping below expectations of a decline by 3.2M barrels. The EIA, however, reported sizeable oil product builds, putting pressure on oil prices. Gasoline and distillate oil products exceeded expectations, with a gasoline inventory build of 10.9M barrels and a weekly distillate build of 10.1M barrels.

Supply concerns boost oil prices as the crisis in the Gaza area threatens to disrupt oil distribution. Geopolitical tensions are rising in the Red Sea, spilling over the region from the war in Gaza. Tensions around the Red Sea area have been rising in the past few weeks, raising concerns that hostilities may spread in the Middle East, affecting oil supply and distribution. Iran-backed Houthi militants are attacking commercial vessels in the Red Sea. Iran has refused to withdraw its support from the Houthi militants and has even sent a warship to the trading route. Most oil companies, however, are resuming transit through the Red Sea despite the attacks, easing supply concerns.

OPEC+ producers recently agreed to voluntary cuts of over 2 million barrels per day to boost oil prices, extending already existing output cuts into the first quarter of 2024 and adding even more. 

Oil prices are also kept in check by a strong US dollar and high-interest rates. Most major central banks, however, are hitting pause on rate hikes, boosting oil prices. The Fed kept interest rates unchanged at its December meeting, within a target range of 5.25% to 5.50%. 

The Fed’s forward guidance was more dovish than expected, hinting that the central bank is preparing to pivot to a less restrictive monetary policy. Market expectations of future rate cuts increase oil demand outlook, boosting oil prices. 

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Written by:
Myrsini Giannouli

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