Oil prices surge as US crude inventories decline

Oil prices surged on Wednesday, with WTI prices rising above the $69 per barrel level. If the WTI price declines, it may encounter support near $67.1 per barrel, while resistance may be found near $72.5 per barrel.

Oil prices surged on Wednesday as US inventories declined, offsetting worries about further interest rate hikes. The U.S. Energy Information Administration announced a higher-than-expected drop in US crude oil inventories on Wednesday. Crude oil inventories dropped by 9.6 million barrels in the week ending on June 23rd, far exceeding expectations of a 1.4-million-barrel decline.

Further rate hike expectations put a lid on oil prices’ ascent on Wednesday, as Fed Chair Jerome Powell delivered a hawkish speech at the ECB Central Bank Forum in Sintra. Powell warned that further tightening would be required, hinting at two more rate hikes up ahead. Expectations of additional monetary tightening reduce oil demand expectations, putting pressure on oil prices.

The U.S. Federal Reserve kept its interest rate steady at its June policy meeting for the first time in over a year. Fed officials have voted to keep the central bank’s interest rate at a target range of 5.00% to 5.25%. The Fed has signaled, however, that its tightening cycle is not over yet and that its peak rate might be higher than anticipated. 

Political instability in Russia provided support for oil prices earlier this week. Geopolitical tensions held oil prices up on Monday, as the crisis in Russia raised oil supply concerns. The market reaction, however, was somewhat muted, as the crisis has not escalated yet. 

Global economic concerns have been weighing oil prices down, raising concerns about further oil production cuts. OPEC+ members have opted to keep production cuts unchanged for the remainder of 2023. Saudi Arabia, on the other hand, will cut production by an additional one million barrels per day, starting in July for a month that can be extended. This will reduce Saudi Arabian production to 9 million barrels per day. 

OPEC output cuts, however, have been offset by a deterioration in China’s economic outlook. Uncertainty over China’s economic recovery has put a cap on oil prices. China is the world’s largest importer and the weaker Chinese oil demand outlook has put pressure on oil prices.

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Written by:
Myrsini Giannouli

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