Oil prices rise on unexpected US stockpile draw

Oil prices gained strength on Wednesday and WTI price rose to $84.0 per barrel. If oil prices retreat, they may encounter support near $80.5 per barrel, while resistance may be found near $84.5 per barrel.

US crude oil inventories released on Wednesday showed that US crude stockpiles fell short of expectations. The US Energy Information Administration reported a weekly crude stockpile drop of 12.2M barrels for the week to June 27th, against expectations of a 0.4M barrel draw and following a buildup of 3.6 M barrels the week before.

Oil prices were supported this week by the seasonal oil demand outlook. Increased oil demand outlook in the summer months is propping up oil prices especially ahead of the US 4th of July holiday. Market estimates that oil demand will peak in July are boosting 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. Powell added that more evidence of disinflation is required before the Fed can shift to a more dovish policy. 

Odds of a Fed rate cut in September rose from approximately 65% to 75% after Fed Chair Jerome Powell’s dovish comments boosting oil prices. The uncertainty around Fed rate expectations is likely to continue in the coming months causing volatility in Forex markets.  

Supply concerns provide support for oil prices, as global geopolitical risks mount. 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. 

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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