Oil prices gain strength on surprise US stockpile draw

Oil prices gained strength on Wednesday and WTI prices rose from $68.5 to $70.5 per barrel. If oil prices retreat, they may encounter support near $66.9 per barrel, while resistance may be found near $70.6 per barrel.

US crude oil inventories released on Wednesday showed an unexpected drop in US crude stockpiles, boosting oil prices. The US Energy Information Administration reported a weekly crude stockpile draw of 1.4M barrels for the week to December 6th, against expectations of a 1.0M barrel draw and following a drop of 5.51 barrels the week before.

On Wednesday, OPEC cut oil demand forecasts for 2024 and 2025 for the fifth month in a row. OPEC has cut 2024 demand growth by 210K barrels a day to 1.6 million barrels a day according to a report released by Bloomberg. The organization estimates that oil demand will drop by an additional 90K barrels per day into 2025. 

OPEC+ announced last week that it will extend its voluntary production cuts until the end of the first quarter of 2025, boosting oil prices temporarily. Oil prices have been under pressure and the cartel is limiting production in an attempt to raise oil prices. 

The civil war in Syria was rekindled last week, further destabilizing the region. In a surprise offensive, Syrian rebels have captured Damascus and toppled the government. President Bashar al-Assad has been forced to flee the country and according to recent reports he has asked for Asylum in Moscow. The Syrian rebel army is currently in charge and political instability in Syria is reigniting geopolitical risks, boosting oil prices.

Meanwhile, concerns of a broadening conflict in the Middle East have been boosting oil prices in the past year. A 60-day ceasefire between Israel and Lebanon has been officially declared, putting pressure on oil prices. Israel, however, is continuing attacks in the Gaza area. In addition, the situation between Russia and Ukraine remains critical, with Russian President Vladimir Putin stating that Russia may use its new nuclear-capable missiles against Ukraine.

Oil prices are kept in check by high central banks’ interest rates. Even though disinflation in the US is stalling, odds of a Fed rate cut in December went up after the release of the US inflation report on Wednesday. After the release of the US inflation report on Wednesday, market odds of a rate cut in December rose from 92% to 98%, boosting oil prices.

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Written by:
Myrsini Giannouli

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