Oil prices steady post U.S. inventory increase; awaiting CPI data

Oil prices remained stable in Asian markets on Thursday following an unforeseen increase in U.S. inventory levels. Additionally, traders exhibited caution ahead of the release of crucial U.S. inflation data.

Crude prices ended lower on Wednesday, reversing early advances due to the Energy Information Administration’s (EIA) inventory report. This report diverged from earlier industry data, which had indicated a decline in U.S. stockpiles, catching the market off guard.

Continued increases in gasoline and distillate inventories for the second consecutive week raised concerns among oil bulls, suggesting dwindling U.S. fuel demand. These worries intensified due to a harsh winter storm affecting significant parts of the nation, leading to disruptions in travel and impacting the world’s largest fuel market.

Worries about U.S. fuel demand align with broader concerns of a potential slowdown in global oil consumption in 2024. This, combined with ample market supplies, poses challenges for oil prices moving forward.

Brent oil futures for March increased 0.1% to $76.92 a barrel, whereas West Texas Intermediate crude futures dipped 0.1% to $71.36 a barrel by 20:08 ET (01:08 GMT).

Both contracts have experienced fluctuating price movements in 2024, balancing potential Middle Eastern supply disruptions with demand concerns. Additionally, a stronger dollar has capped significant crude price increases.

Brent and WTI futures experienced a drop of over 10% in 2023.

U.S. inventories rose unexpectedly, with large builds in product stockpiles

U.S. crude inventories unexpectedly increased by 1.3 million barrels, contrasting with a projected 0.7 million barrel draw.

The continuous rise in product inventories is concerning for oil markets. Gasoline stockpiles increased by about 8 million barrels, following a significant 10.9 million barrel rise the prior week. Additionally, distillate inventories grew by 6.5 million barrels, exceeding expectations and amplifying demand worries.

The significant increases in product inventories have raised worries about fuel demand, especially with reduced winter travel contributing to weakened consumption.

The slowdown further heightened concerns that global oil demand could weaken in 2024, influenced by elevated interest rates and persistent inflation.

Awaiting U.S. CPI data with doubts on rate cuts

Market participants are keenly awaiting the release of the U.S. Consumer Price Index (CPI) data, scheduled for later in the day, to glean insights into the potential trajectory of interest rates.

The anticipated data suggests a modest uptick in headline inflation, whereas core CPI is forecasted to show a continued decline.

The uncertain impact of the upcoming data on potential Fed rate cuts persists, especially with inflation projected to stay above the bank’s 2% target. This uncertainty has led traders to question the likelihood of rate cuts as early as March 2024.

The expectation remains that the central bank will initiate interest rate reductions in 2024, which could positively influence oil demand and prices.

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