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Wednesday, 22. May 2024

Oil Prices Climb on Decline in US Inventories; Attention Shifts to CPI Inflation


Oil prices inched up during Asian trading on Wednesday following reports of a decline in U.S. inventories, which bolstered expectations of tighter supply. However, gains were tempered by the anticipation of important inflation data.

Crude markets received positive signals from Federal Reserve Chair Jerome Powell, who highlighted the resilience of the world’s largest economy. Additionally, China’s announcement of plans for a substantial 1 trillion yuan ($138 billion) bond issuance contributed to market strength.

Anticipation of tighter North American markets was also fueled by a series of destructive wildfires in Canada. In particular, Fort McMurray, a significant Canadian oil sands city, witnessed the evacuation of approximately 6,000 individuals as a nearby fire threatened the area.

However, the uptick in crude prices was tempered by hotter-than-anticipated U.S. producer price index (PPI) inflation figures released on Tuesday. This data heightened concerns among investors about a potentially stronger-than-expected consumer price index (CPI) reading due on Wednesday.

Brent crude futures for July delivery climbed 0.4% to $82.70 per barrel, while West Texas Intermediate (WTI) crude futures increased by the same percentage to $77.97 per barrel by 21:06 ET (01:06 GMT).

US Inventories Decline Beyond Expectations, API Reports

According to data released by the American Petroleum Institute (API) on Tuesday, U.S. oil inventories decreased by 3.1 million barrels in the week ending May 10, surpassing expectations for a draw of 1.1 million barrels.

The data also indicated a decrease in gasoline stockpiles, while distillates saw a rise of 349,000 barrels.

The reading raised hopes that U.S. fuel demand was increasing with the onset of the travel-heavy summer season, potentially tightening global crude supplies. This comes despite U.S. production remaining at record highs.

The shrinking U.S. inventories and potential supply disruptions in Canada further tighten the outlook for North American crude markets.

The API data typically foreshadows a similar outcome in the official inventory data, scheduled for release later on Wednesday.

Inflation Concerns Heighten Ahead of CPI Data Release

Oil markets remained tense as investors awaited crucial U.S. CPI data set for release later on Wednesday, particularly after April’s PPI data came in hotter than anticipated.

Traders remained cautious, wary of further indications of persistent U.S. inflation, which could prompt the Fed to maintain high interest rates for an extended period, potentially dampening prospects for crude oil.

High interest rates are anticipated to impede global economic activity and potentially curb demand for oil.

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