Oil prices rally on US stockpile draw

Oil prices rallied on Wednesday and WTI price rose to $82.7 per barrel. If oil prices retreat, they may encounter support near $80.9 per barrel, while resistance may be found near $84.6 per barrel.

US crude oil inventories released on Wednesday showed an unexpected drop in US crude stockpiles. The US Energy Information Administration reported a weekly crude stockpile draw of 3.4M barrels for the week to July 5th, against expectations of a 0.7M barrel build and following a larger draw of 12.2M barrels the week before.

Oil prices are supported by the seasonal oil demand outlook. Increased oil demand outlook in the summer months is propping up oil prices. Market estimates that oil demand will peak in July are boosting oil prices. 

Concerns that hurricane Beryl would damage oil-producing infrastructure in Texas boosted oil prices in the past few days. As the US oil-producing hub in Texas remained largely intact after the hurricane, however, oil supply concerns eased, putting pressure on oil prices. 

Supply concerns provide support for oil prices on global geopolitical risks. The ongoing crisis in the Middle East threatens to disrupt oil distribution. Tensions around the Red Sea area raise concerns that hostilities may spread further in the Middle East, affecting oil supply and distribution. Hopes of a ceasefire deal in Gaza, however, are putting pressure on oil prices. 

Oil prices are kept in check by high central banks’ interest rates. The US Federal Reserve kept interest rates unchanged at its policy meeting in June, within a target range of 5.25% to 5.50%, as expected. The US Fed is keeping interest rates at a 23-year high, restricting economic growth and limiting the oil demand outlook as a result. 

Odds of Fed rate cuts have become more moderate, putting pressure on oil prices. Renewed rate cut expectations propped up oil prices on Wednesday. Fed Chair Jerome Powell stated that significant progress has been made on disinflation, hinting at a rate cut in September. Odds of a Fed rate cut in September are approximately 75% but are fluctuating, causing volatility in oil prices. 

OPEC+ has decided to extend most of its voluntary production cuts into 2025 to boost oil prices. OPEC, however, announced that it would gradually phase out oil production cuts and laid out plans for restoring production levels within 2025. 

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Written by:
Myrsini Giannouli

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