Oil prices fell on Wednesday as the unexpected rise in crude and fuel stocks and economic uncertainty in the US, the world’s largest oil consumer, rekindled demand concerns.
Brent crude futures fell 75 cents, or 0.9%, to $79.35 a barrel at 0503 GMT. West Texas Intermediate (WTI) crude futures fell 79 cents, or 1.1%, to $74.33 a barrel.
Both contracts rose during trading on Monday and Tuesday, rebounding from sharp selling in the first week of 2023.
U.S. crude inventories increased by 14.9 million barrels in the week ended January 6, according to data from the American Petroleum Institute (API). At the same time, distillate stocks, including heating oil and jet fuel, increased by approximately 1.1 million barrels.
Analysts had expected crude oil inventories to drop by 2.2 million barrels and distillates to fall by 500,000 barrels.
The large increase in US inventories according to API forecasts will push oil prices down, and the risk of recession will limit the oil price uptrend in the short term.
Traders will await inventory data from the U.S. Energy Information Administration (EIA) to be released Wednesday to see if the API matches their forecast.
The oil market focused on the US interest rates, which acted with the intent to contain inflation, which risks triggering a recession and reducing fuel demand.
China is still battling a widespread COVID-19 pandemic, the US and Europe are at risk of an economic slowdown due to rising interest rates, and the prevailing market sentiment on the demand side is bearish as supply disruptions are minimal for now.
Instant monthly prices are trading lower than futures monthly prices, which is typically a sign of less short-term demand for oil.
Prices rose earlier this week in hopes of boosting fuel demand in China, the world’s second-largest oil consumer after COVID-19 restrictions eased and international travel resumed.
News on Monday that China is issuing new import quotas shows the world’s largest importer is accelerating to meet growing demand.
The big focus this week is the US inflation data, due on Thursday. Analysts say that if inflation falls below expectations, it will pull the dollar down. A weaker dollar could increase demand for oil as it makes oil cheaper for buyers holding other currencies.
Michelle Bowman, a member of the US Federal Reserve Board (Fed), said in a statement yesterday that she expected more interest rate hikes, stating that higher interest rates should continue for a while until inflation is suppressed.
The World Bank lowered its 2023 global economic growth forecast to 1.7 percent from the 3 percent level announced in June.
