Oil Prices Rise as Soft CPI Release Offsets Unexpected US Inventory Increase

Oil prices experienced an increase on Wednesday, driven by a cooler inflation report that raised hopes for rate cuts. However, gains were tempered by an unexpected rise in domestic crude supplies, along with hawkish projections from the Federal Reserve, which indicated fewer anticipated rate cuts.

As of 14:30 ET (18:30 GMT), oil prices rose by 0.8% to $82.60 a barrel, while Brent crude increased by 0.7% to $78.50 a barrel.

### Fed’s Hawkish Surprise; CPI Rises Less Than Expected

The Federal Reserve decided to keep interest rates unchanged on Wednesday but now predicts that only one rate cut will occur this year, anticipating inflation levels to trend higher than previously forecasted.

Economists at Jefferies remarked, “The shifts in the projections of the Fed’s SEP are more hawkish than we anticipated,” following the announcement.

Earlier data revealed that U.S. consumer prices rose by 3.3% in May, slightly down from 3.4% in April, indicating a potential easing in price pressures. Month-over-month, the consumer price index (CPI) stagnated at 0.0%, down from 0.3%.

Despite recent indicators of a strong U.S. labor market and persistent inflation, the outlook suggests that interest rates may remain elevated for an extended period, which could negatively impact global economic growth and oil demand.

### Unexpected Build in U.S. Inventories

Official reports showed that crude oil inventories increased by 3.7 million barrels for the week ending June 7, contradicting expectations of a 1.2 million barrel drawdown. Additionally, gasoline and distillate stocks also rose, by 2.6 million and 881,000 barrels respectively, hinting at weaker-than-expected fuel consumption as the summer travel season begins.

### IEA Lowers 2024 Demand Growth Forecast

These inventory increases occurred even as the International Energy Agency (IEA) downgraded its forecast for global crude demand growth for 2024 by 100,000 barrels per day, now estimating an increase of 960,000 bpd. The IEA attributed this revision to sluggish consumption rates in developed nations.

The agency also projected that global oil demand would peak by 2029 and start to decline the following year. This outlook differs from a more optimistic view provided by the Organization of the Petroleum Exporting Countries (OPEC), which maintained its forecast for robust global oil demand in 2024. OPEC indicated that its decision to uphold output curbs might lead to a supply deficit in the upcoming third quarter.

(Peter Nurse and Ambar Warrick contributed to this article.)