Oil prices showed positive activity yesterday, Wednesday, after declining for three consecutive sessions, as a result of the decline in crude oil inventories in the United States and the increased risk of the impact of wildfires in Canada on oil supplies, which led to higher prices. Brent crude oil contracts for September delivery rose 40 cents, or 0.5%, to $81.41 per barrel. The price of US West Texas Intermediate crude oil for September delivery also rose 40 cents, or 0.5%, to $77.36 a barrel. West Texas Intermediate crude oil had lost about 7% during the previous three sessions, while Brent oil prices had lost about 5%.
The United States saw crude oil, gasoline and distillate product inventories decline for the fourth straight week, according to reports from the American Petroleum Institute citing market sources, reflecting strong demand in the world’s largest oil market. The sources reported that the American Petroleum Institute figures showed a decline in crude inventories by about 3.9 million barrels in the week ending July 19, a number that exceeds expectations that indicated an increase of about 0.7 million barrels. The institute’s data, which is usually considered an initial indicator of official inventory reports, indicates a continued decline in inventories for the fourth week, with expectations of an increase in demand for oil during the summer season, which witnesses great activity in the travel sector.
Gasoline inventories fell by 2.8 million barrels, and distillates fell by 1.5 million barrels, indicating continued strength in demand in the world’s largest fuel market. This development is also expected to maintain tensions in the oil markets in the near term. In another context, oil prices fell to their lowest level in six weeks on Tuesday, as Brent crude prices closed at their lowest level since June 9.
US diesel futures
US diesel futures also settled at their lowest levels since June 7, while gasoline futures closed at their lowest levels since June 14. The war in Gaza provided support to oil futures as investors priced in the risks of potential disruptions to global crude oil supplies in key production areas in the Middle East. Also affecting prices is that the US dollar strengthened to its highest level in nine days against a basket of other currencies. A stronger dollar makes oil more expensive in other countries, which can reduce demand for fuel.
The Federal Reserve raised interest rates aggressively in 2022 and 2023 to curb rising inflation. Higher interest rates increase borrowing costs for consumers and businesses, which may reduce economic growth and demand for oil. China surprised markets by cutting key short- and long-term interest rates on Monday, in its first large-scale move since last August, signaling its intention to boost growth in the world’s second-largest economy.
Analysts expected US energy companies to pull about 1.6 million barrels of crude oil from inventory during the week ending July 19. If this prediction comes true, it would be the first time US oil inventories have fallen for four consecutive weeks since September 2023. This decline compares to a decline of 600,000 barrels in the same week last year, and an average decline of 1.8 million barrels over the previous five years. (2019-2023)
Oil analysts at Investing.com indicated that oil prices are rising as a result of unexpected shrinkage in US oil inventories. They explained that oil prices rose in Asian trading on Wednesday, recovering some of the recent losses, as a result of enhanced expectations of tight markets in the near term, based on industry data that showed a decline in US oil inventories.
Expectations of increased global oil production
Increased global oil production, coupled with the possibility of declining demand in China, the largest importer, is expected to keep oil markets adequately supplied in the coming months. China has been the main pain point for crude oil markets, amid growing uncertainty over the country’s economic recovery. Recent data showed that the country’s economy grew less than expected in the second quarter, while its oil imports declined sharply in June.
For its part, the Russian government is considering imposing a ban on diesel exports due to the rise in local prices. Russia is the largest exporter of seaborne diesel in the world before the United States. Diesel is its most important petroleum product export, amounting to about 35 million metric tons annually, about three-quarters of which is shipped via pipelines. Russia suspended its diesel exports last fall for about two weeks, but resumed supplies from abroad via pipelines. Russia restricts gasoline exports and is scheduled to resume the ban on gasoline exports from August 1. Diesel exports may be banned if prices rise sharply, but no decision has been made yet, one of the sources said.
In India, an informed source said on Wednesday that the Indian company Reliance Industries had obtained approval from the United States to resume importing oil from Venezuela despite Washington’s sanctions. In April, the United States reimposed sanctions on the Venezuelan oil sector in response to President Nicolas Maduro’s failure to fulfill his election obligations but said some companies would be allowed to trade and operate in Venezuela. Before US oil sanctions were first imposed on Venezuela in 2019, Reliance was the second-largest buyer of Venezuelan oil after China’s CNBC.
