Oil Prices Steady as Diminished Hurricane Concerns Offset Significant Drawdown

Oil prices stabilized on Wednesday, retracting some earlier gains while remaining near two-month highs, following industry reports indicating a significant decline in U.S. inventories last week, which has fueled optimism regarding demand.

By 07:00 ET (11:00 GMT), crude oil prices had risen by 0.2% to $86.37 per barrel, while Brent crude saw a 0.1% increase to $82.88 per barrel.

### Hurricane Supply Concerns Diminish Amid Economic Worries

During the morning trading session, initial gains began to fade as the market reacted to decreasing fears that Hurricane Beryl might disrupt offshore oil production in Mexico and along the East Coast. The hurricane, currently classified as a dangerous category 4 storm in the Caribbean, is forecasted to weaken to a tropical storm as it approaches the Gulf of Mexico later this week, according to reports from the U.S. National Hurricane Center. Earlier predictions had labeled it as a potential category 5 storm, raising alarm over possible supply interruptions.

Compounding market concerns, surveys indicated that China’s services sector expanded at its slowest rate in eight months, with confidence levels hitting a four-year low in June, partly due to a slowdown in new orders. Similarly, data from Europe revealed a significant deceleration in business growth across the eurozone last month, with a widely regarded gauge of economic health falling to 50.9 in June from May’s 12-month high of 52.2.

### Sharp Decline in U.S. Inventories and Rising Summer Demand

Crude markets experienced notable early-session gains as data showed U.S. inventories plummeted by nearly 9.2 million barrels for the week ending June 28, significantly surpassing the anticipated decline of 0.15 million barrels. This substantial drawdown has bolstered expectations for increased U.S. demand during the busy summer travel season. The American Automobile Association projected that road travel would hit a record high this week in anticipation of the Independence Day holiday.

The prospect of a marked increase in U.S. fuel demand has been a primary driver behind oil’s recent uptrend, even as the largest fuel consumer faces challenges from cooling economic growth amid persistent inflation and elevated interest rates.

### Focus on Federal Reserve Minutes and Labor Data

Later on Wednesday, the Federal Reserve is scheduled to release minutes from its recent monetary policy meeting in June, during which the central bank opted to maintain interest rates at a two-decade high range, signaling only one expected rate cut for the year. Additionally, labor market data, including private payroll numbers from ADP, will be closely monitored in advance of the critical nonfarm payrolls report due on Friday.

(Contributions to this article were made by Ambar Warrick.)