Oil Prices Rise on Larger-Than-Expected Draw in US Inventories

Oil prices climbed in Asian trade, continuing a recent rebound driven by a larger-than-expected reduction in U.S. inventories, which increased expectations of tighter supplies and improving demand in the world’s largest fuel consumer.

Market Movement

• Brent oil futures for September delivery rose 0.4% to $85.41 a barrel.
• West Texas Intermediate (WTI) crude futures increased 0.5% to $81.88 a barrel by 23:45 ET (03:45 GMT).

US Inventory Data

The Energy Information Administration reported a significant drawdown in U.S. oil inventories, which fell by nearly 4.9 million barrels, far exceeding the anticipated 0.9 million barrels. This marks the third consecutive week of declining inventories, suggesting a pickup in demand amid the summer travel season. However, the overall impact was tempered by increases in distillates and gasoline inventories, hinting at a potential slowdown in demand following the initial boost from the Independence Day holiday.

Impact of Fed Rate Speculation

Oil prices were further supported by growing speculation of an interest rate cut by the Federal Reserve, which has recently pressured the dollar. Soft inflation readings and dovish comments from Fed officials have led traders to bet on rate cuts as early as September. Lower interest rates typically boost economic growth prospects, thereby increasing oil demand. Additionally, a weaker dollar makes oil cheaper for international buyers, further supporting demand.

Concerns Over China

Despite the positive momentum, oil price gains were limited by ongoing concerns about China’s economic outlook. Recent data indicated a slowdown in economic growth for the second quarter in China, the world’s largest oil importer. Additionally, rising trade tensions with the U.S. are causing concern. A Bloomberg report suggested that the U.S. government is considering stricter restrictions on China’s technology and chipmaking sectors, potentially reigniting a trade war between the two nations.

In summary, while the larger-than-expected draw in U.S. oil inventories and the prospect of Fed rate cuts have buoyed oil prices, persistent concerns about China’s economic health and trade tensions with the U.S. continue to exert downward pressure on the market.

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