Oil Prices Decline Amid Rising U.S. Fuel Inventories

Oil prices have dropped for two consecutive days as fuel inventories in the United States, the largest oil consumer globally, have increased. However, concerns about tightening supply and expectations for rising winter demand have prevented larger price declines.

As of 0409 GMT on Thursday, Brent crude futures decreased by 8 cents to $76.08 a barrel, while U.S. West Texas Intermediate crude futures fell by 11 cents to $73.21. Both benchmarks are down approximately 0.1% compared to the previous trading session.

The downturn follows a more than 1% drop on Wednesday, influenced by a stronger dollar and an unexpected surge in U.S. fuel inventories.

According to the U.S. Energy Information Administration, gasoline stocks rose by 6.3 million barrels last week, reaching a total of 237.7 million barrels. This was significantly higher than the 1.5 million barrels analysts anticipated.

In addition, distillate fuel stocks increased by 6.1 million barrels, bringing the total to 128.9 million barrels, surpassing expectations of a 600,000-barrel gain.

However, crude oil inventories slightly declined by 959,000 barrels, contradicting analysts' forecasts of a 184,000-barrel draw.

Hiroyuki Kikukawa, president of NS Trading (a subsidiary of Nissan Securities), noted, "The increase in U.S. fuel inventories has led to some selling activity, but the overall decline is limited due to the upcoming winter demand season in the Northern Hemisphere."

Analysts at JPMorgan predict that oil demand will rise by 1.4 million barrels per day year-on-year in January, reaching an average of 101.4 million bpd. This increase is mainly attributed to a higher consumption of heating fuels as colder winter conditions take hold.

Furthermore, strong global oil demand is expected to persist throughout January, driven by low winter temperatures and an earlier surge in travel activity in China ahead of the Lunar New Year holidays.

Despite the recent price decline, market indicators suggest that traders are feeling more apprehensive about supply constraints, with increasing demand on the horizon. The premium for the first-month Brent futures contract over the six-month contract has widened to its largest margin since August. A wider backwardation, when prompt delivery futures are priced higher than those for later delivery, generally signals diminishing supply or rising demand.

Looking to the future, market observers will closely watch demand trends in China, the anticipated energy and trade policies of the incoming U.S. administration, and its position on the ongoing conflict between Russia and Ukraine. Kikukawa indicated that traders are likely to avoid making significant moves until President-elect Donald Trump is inaugurated on January 20.

oil, inventory, demand