Oil Prices Rise on Inventory Draw and Summer Demand Expectations

Oil prices have marked their second consecutive weekly gain, a notable recovery not seen since early April. This uptick comes on the heels of a surprise draw in U.S. inventory levels and signals of robust product demand, underscoring buoyant conditions in the world’s top consumer market.

U.S. Crude Inventory Fell

U.S. crude holdings declined by 2.2 million barrels last week, contrary to expectations of an increase forecasted by the American Petroleum Institute. This unexpected drawdown has played a crucial role in the recent price rally. The consumption of products such as gasoline, diesel, and jet fuel has shown signs of improvement, further supporting this upward trend.

Brent Crude closed at $85.65 per barrel, experiencing a rise of more than 3.6% over the past five days. Similarly, West Texas Intermediate (WTI) settled at $81.59 per barrel. This price movement is backed by broader market factors, including a forecast by the American Automobile Association, predicting a record 71 million Americans will travel over the U.S. Fourth of July holiday period, indicative of heightened demand.

Seasonal Demand and Future Outlook

The drawdown in U.S. crude inventories, coupled with an unexpected fall in weekly gasoline supplies by 2.3 million barrels, supports the expectation of increased energy demand during the summer months. The latest data from the Energy Information Administration (EIA) showed a decline in U.S. crude stockpiles by 2.5 million barrels to 457.1 million barrels, exceeding analysts’ expectations. Gasoline inventories fell to 231.2 million barrels, further indicating a surge in seasonal demand.

Economic Indicators and Federal Reserve Policies

Economic data indicating a slowing U.S. economy, such as higher-than-expected jobless claims and a slump in housing starts, have fuelled speculation about a potential rate cut by the Federal Reserve. The odds of a September rate cut have slightly increased, which could further boost sentiment in the oil market. However, higher interest rates generally limit economic growth and, consequently, oil demand.

Geopolitical tensions in the Middle East continue to exert upward pressure on oil prices. Recent attacks on shipping routes by Yemen’s Houthi militants and escalating conflicts involving Israel and Hezbollah have heightened concerns over supply disruptions, adding a risk premium to oil prices.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.