Oil prices rebounded on Wednesday after data showed a bigger-than-expected crude oil draw in the United States and lukewarm inflation data, which fueled expectations of a Federal Reserve interest rate cut later this year.
Upward Trajectory After Bearish Report
Earlier in the day, a report from the International Energy Agency (IEA) had pressured oil prices. The IEA trimmed its forecast for 2024 oil demand growth, widening the gap with producer group OPEC in terms of expectations for this year’s global demand outlook. This bearish outlook pushed Brent and West Texas Intermediate (WTI) crude oil prices to their lowest levels since February.
However, the tide turned after data from the Energy Information Administration (EIA) showed a significant draw in US crude inventories. U.S. crude inventories last week fell 2.5 million barrels, much more than the 500,000-barrel draw forecast in a Reuters poll. Industry experts attributed the draw to increased refinery utilization rates.
“The crude oil draw is mostly due to the increase in the refinery utilization rate,” Bob Yawger, director of energy futures at Mizuho, told Reuters. “Refiners finally got busy and increased output.”
Lukewarm Inflation Raises Rate Cut Hopes
Adding to the bullish sentiment, US consumer prices increased less than expected in April. This suggests that inflation may have resumed its downward trend, boosting expectations that the Federal Reserve will cut interest rates in September. Lower interest rates would reduce borrowing costs for businesses and consumers and could spur economic growth and demand for oil.
The prospect of a weaker dollar also aided the oil price rebound. With the Fed expected to cut interest rates later this year, the US dollar fell to a five-week low against a basket of other currencies. A weaker dollar can boost demand for oil, as the greenback-denominated commodity becomes less expensive to buy in other currencies.
OPEC+ Meeting Likely Online, Fort McMurray Wildfire Threat Eases
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, are likely to hold their upcoming June 1 meeting online, rather than in Vienna as previously scheduled.
Meanwhile, in Canada, favorable winds are expected to push a major wildfire away from the oil sands city of Fort McMurray. This is positive news for the oil industry, as a huge wildfire in 2016 forced the evacuation of 90,000 residents and shut in more than 1 million barrels per day of output.
The oil market will continue to be influenced by a variety of factors in the coming weeks, including global economic growth, geopolitical tensions, and OPEC+ production decisions.
Source: Reuters
