Oil prices drop on surprise US inventory build

Oil prices exhibited high volatility on Wednesday, with WTI price dipping to $80.9 per barrel. If oil prices drop, they may encounter support near $79.5 per barrel, while resistance may be found near $82.1 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 3.6M barrels for the week to June 21st, exceeding expectations of a draw of 2.6M barrels and following a 2.5M barrels draw the week before. 

Weak oil demand outlook put pressure on oil prices this week. US Consumer confidence declined in June according to data released on Tuesday, dampening the economic outlook and putting a lid on oil prices. 

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. Tensions are rising on the Israel-Lebanon border as Israel threatens to declare an all-out war with Hezbollah, which will destabilize the region further.

Oil prices continued to gain strength this week on the seasonal oil demand outlook. Increased oil demand outlook in the summer months is propping up 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, as policymakers have stated that they do not intend to start reducing interest rates until there is more evidence of disinflation. Odds of a Fed rate cut in September are currently below 70%, while a rate cut by November is fully priced in.

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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