Oil Prices Decline Amid Rising U.S. Fuel Inventories

Oil prices experienced a decline for a second consecutive day on Thursday, primarily influenced by significant increases in fuel inventories in the United States, which is the largest oil consumer in the world. Despite this downward trend, the potential increase in winter fuel demand and worries about tightening supply helped to mitigate further drops in prices.

As of 0409 GMT, Brent crude futures had decreased by 8 cents, settling at $76.08 per barrel. Meanwhile, U.S. West Texas Intermediate crude futures slipped by 11 cents, trading at $73.21 per barrel. Both benchmarks recorded a decline of around 0.1% from the previous trading session.

On Wednesday, both crude benchmarks fell by more than 1%. The stronger U.S. dollar, compounded by a larger-than-anticipated rise in U.S. fuel stockpiles, significantly impacted oil prices.

According to the U.S. Energy Information Administration, gasoline inventories saw an increase of 6.3 million barrels last week, reaching a total of 237.7 million barrels. This rise was notably higher than analysts’ expectation of a 1.5 million-barrel increase.

Furthermore, distillate stockpiles climbed by 6.1 million barrels, rising to 128.9 million barrels, while analysts had forecasted only a 600,000-barrel hike.

In contrast, crude oil inventories witnessed a decline of 959,000 barrels, contrary to expectations that anticipated a draw of 184,000 barrels.

According to Hiroyuki Kikukawa, president of NS Trading, which is a unit of Nissan Securities, the increase in U.S. fuel inventories led to some selling pressure in the market. However, he noted that the potential for rising winter demand in the northern hemisphere is likely to limit the downside of prices.

Analysts at JPMorgan are predicting that oil demand in January could grow by 1.4 million barrels per day compared to the previous year, reaching a total of 101.4 million barrels per day. This increase is expected to be driven largely by more significant heating fuel use as winter progresses in the Northern Hemisphere.

JPMorgan analysts additionally commented that the global demand for oil is likely to remain vigorous throughout January, especially due to colder-than-normal winter conditions leading to higher heating fuel consumption, as well as increased travel activities in China ahead of the Lunar New Year.

Despite the recent price decreases, the market structure indicated by Brent futures suggests that traders are increasingly concerned about potential supply tightening amid rising demand. The premium on the front-month Brent contract compared to the six-month contract recently reached its highest level since August. A widening in this backwardation, where immediate delivery prices are higher than those for later deliveries, typically indicates a decline in supply or an uptick in demand.

Looking ahead, key factors include trends in China’s oil demand, the energy and trade policies of the incoming U.S. administration, and its position regarding the ongoing conflict between Russia and Ukraine. Kikukawa suggests that traders are likely to remain cautious and avoid taking large positions until President-elect Donald Trump assumes office on January 20.

Oil, Prices, Inventories