Oil prices rise as US crude inventories decline

Oil prices continued to rise on Wednesday, with WTI price climbing above $90.0 per barrel. If the WTI price declines, it may encounter support near $82.1 per barrel, while resistance can be found at the $90.3 per barrel level and further up at $93.4 per barrel. 

According to data released on Wednesday, US crude oil inventories dropped by 3.1M barrels last week, against a gain of 2.6M barrels the week before. The large drop in inventories far exceeded expectations of a more modest drop by 0.2M barrels, boosting oil prices on Wednesday.

Oil prices continued to rise even after the US Federal Reserve raised interest rates by 75 basis points, bringing its interest rate to 4.0%. Aggressive rate hikes stifle economic activity, undercutting oil demand. The Fed’s rate hike however fell within market expectations, failing to curb the ascent of oil prices.

Oil prices remain high ahead of the US midterm elections, causing a headache for the US government. On Tuesday, US President Joe Biden warned oil companies to stop profiteering from the war between Russia and Ukraine. Major oil companies have posted record profits this year, which may induce the US government to impose a windfall tax on them.

The Biden administration has recently announced the release more of barrels from the US Strategic Petroleum Reserves, checking the ascend of oil prices. US President Joe Biden announced a plan to sell 15 million barrels from the SPR representing the latest tranche of the 180-million-barrel program. 

One of the determining factors of oil prices in the past few months has been the uncertainty governing oil demand from China. China is the world’s largest energy importer and concerns about renewed lockdowns are stifling oil demand. China’s zero-Covid policy has isolated the country and has dealt a heavy blow to its economy. Reports that the Chinese government would ease Covid measures have boosted oil prices this week. In addition, manufacturing PMI data for China released on Tuesday exceeded expectations, raising hopes for the recovery of the country’s industry. Lower than-expected factory activity data in China renewed fears of declining oil demand on Monday however, helping check oil prices. In addition, last week, lower-than-expected data for Chinese oil demand put pressure on oil prices. Although demand increased in September compared to August, Chinese crude oil import data is approximately 2% lower than last year. 

OPEC+ recently decided on a massive output cut of 2 million BPD starting in November. OPEC performed the largest reduction since 2020 in a bid to raise prices, led by Saudi Arabia and Russia. Despite mounting global recession risks, OPEC+ members strive to reclaim the $100 per barrel key level. 

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Written by:
Myrsini Giannouli

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