Oil prices plummet on surprise inventory rise

Oil prices plummeted on Thursday, with WTI price dropping below the $74 per barrel level. If WTI price declines, it may encounter support near $72.4 per barrel, while resistance may be found near $79.0 per barrel.

US crude oil inventories released on Wednesday showed a surprise build in US crude stockpiles, putting pressure on oil prices. The US Energy Information Administration reported that weekly crude stocks rose by 1.2M barrels for the week to January 26th, which exceeded expectations of a drop by 0.8M barrels. 

Oil prices are kept in check by a strong US dollar and high-interest rates. The Fed kept interest rates unchanged on Wednesday, within a target range of 5.25% to 5.50%, which was in line with expectations. 

Fed Chair Jerome Powell’s press conference after the meeting attracted a lot of attention as traders focused on the central bank’s forward guidance. Powell’s speech caused market volatility as the Fed Chair stated that there would be no rate cuts in March, dashing some investors’ hopes. Oil prices dropped after Powell’s speech reduced rate cut expectations.

The International Monetary Fund upgraded its global economic growth outlook on Tuesday, boosting oil prices. The IMF raised its global growth forecast for 2024 to 3.1%, from 2.9% in October. The organization based its updated estimate mainly on increased economic growth in the US and China and on cooling inflationary pressures.

Supply concerns also boost oil prices, as the crisis in the Gaza area threatens to disrupt oil distribution. Tensions around the Red Sea area have been rising, 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, with Yemen Houthi rebels launching missiles at a fuel tanker on Friday. 

A deadly drone attack against US forces over the weekend intensified tensions in the Middle East, increasing concerns for the oil transportation routes in the area. President Joe Biden stated that the US will hold those responsible to account. The US has accused Iran of being behind the attack and has threatened to retaliate, although the Iranian government denies any involvement in the drone attacks. Biden said on Tuesday that he has decided on how to respond to the drone attack hinting that he holds Iran responsible for the incident.

China’s poor economic outlook is increasing concerns of reduced oil demand, putting a lid on oil prices, despite increasing geopolitical risks. Weak economic growth in China raises concerns about future demand, pushing oil prices down. Oil prices retreated on Monday as reports of a real estate crisis in China fueled demand worries.

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Written by:
Myrsini Giannouli

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