Oil Prices Decline Amid Signs of US Inventory Increase; Fed Decision Approaches

Oil prices saw a decline on Wednesday, interrupting a recent recovery as industry data revealed an unexpected rise in US inventories.

Despite the drop, prices had experienced significant gains over the past week due to ongoing supply disruptions from Hurricane Francine and the anticipation of lower interest rates, which led traders to buy crude oil at discounted prices. Additionally, increasing tensions in the Middle East created further demand for crude, particularly after Hezbollah threatened retaliation against Israel, claiming that it detonated explosives throughout Lebanon earlier this week.

As of 10:18 ET (14:18 GMT), crude oil prices were down 0.2% at $73.53 a barrel, and Brent crude also fell 0.2% to $69.84 per barrel. Both contracts had surged from near three-year lows in the previous week.

Data indicated an unexpected increase in US oil inventories for the week ending September 13. Inventories rose by 1.96 million barrels per day, contrary to expectations of a 0.1 million bpd decline, and differed from the 2.79 million bpd drop recorded the prior week. This increase follows official data from last week, which also showed a build-up in US inventories, suggesting that demand in the world’s largest fuel consumer is waning with the conclusion of the busy summer travel season. This data is often a precursor to the government’s reading, expected later on Wednesday, and suggests that production disruptions from Hurricane Francine were limited.

Concerns over demand and potential interest rate cuts were also in focus. Chinese markets reopened after a lengthy holiday, with local traders reacting to a slew of disappointing economic indicators from the country. These figures heightened fears of slowing growth in the world’s largest oil importer, potentially diminishing its demand for crude.

Furthermore, markets were anxious ahead of the conclusion of a two-day central bank meeting, where officials are widely anticipated to implement interest rate cuts for the first time in over four years. Speculation includes expectations for a reduction between 25 to 50 basis points. The anticipation of the decision helped to weaken the dollar, which in turn provided some support for crude prices.