In a surprising turn of events, oil prices experienced a second consecutive drop as data revealed a substantial increase in US crude inventories. The surge, the most significant since November, thwarted bullish expectations and maintained oil prices within a narrow range for the year. Brent crude neared $81 per barrel after a 1.4% decline on Wednesday, while West Texas Intermediate approached $76. The unexpected nationwide stockpile expansion of 12 million barrels last week, particularly at the Cushing, Oklahoma storage hub, contributed to the market’s unease. Despite the setback, diesel and gasoline stockpiles decreased due to refinery outages.
Investment strategist Han Zhong Liang from Standard Chartered Plc commented on the market’s reaction, stating, “Markets were shocked by the quantum of the increase in crude inventories.” He anticipates the oil market to remain balanced in 2024, with prices likely to hover around current levels. Despite efforts by OPEC+ and tensions in the Middle East, the oil market has failed to break out of a $10-a-barrel range this year. Factors such as robust supplies from non-OPEC+ drillers and concerns about slowing global demand growth in 2024 have played a role. Additionally, the expectation of higher US interest rates due to persistent inflation has been a significant headwind.
However, market indicators still point to tight conditions, with timespreads for major benchmarks maintaining a bullish, backwardated structure. Refiners continue to enjoy elevated profits from producing fuels like diesel and gasoline. The International Energy Agency (IEA), which is in talks with India to join, is set to release its monthly outlook, with Chief Fatih Birol expressing confidence earlier this week that global markets should remain “comfortable” in 2024 as more supply enters the market and demand growth weakens.
