Oil Prices Rise Amid Declining US Crude Stockpiles and Dollar Weakness

Oil prices saw an increase on Wednesday, driven by a significantly larger-than-expected reduction in U.S. weekly inventories and a decline in the dollar, which helped mitigate the International Energy Agency’s less optimistic forecast for demand growth this year.

By 14:30 ET (18:30 GMT), West Texas Intermediate rose 1% to $82.85 per barrel, while Brent crude increased 1% to $78.63 per barrel.

U.S. Inventories Decline More Than Anticipated

The U.S. inventory for crude oil dropped by 2.5 million barrels for the week ending on May 9. This decline was considerably sharper than the anticipated reduction of 400,000 barrels.

In addition, gasoline inventories unexpectedly decreased by 235,000 barrels, contrasting predictions of an increase of 888,000 barrels. Distillate inventories also fell by 45,000 barrels, compared to forecasts suggesting a build of 770,000 barrels.

These figures raised hopes that fuel demand in the U.S. might be picking up as the travel-heavy summer season approaches, which could help tighten global crude supplies despite U.S. production remaining at record levels.

IEA Lowers 2024 Growth Projection

Earlier on Wednesday, the International Energy Agency (IEA) downgraded its forecast for oil demand growth in 2024, attributing the revision to weak demand from developed OECD countries, especially Europe.

The Paris-based organization adjusted its growth outlook for this year downward by 140,000 barrels per day to 1.1 million bpd, while slightly increasing its 2025 growth forecast to 1.2 million bpd.

The IEA noted that the reduced demand forecast for 2024 is linked to sluggish economic growth, particularly in Europe, where a decline in the share of diesel vehicles is negatively impacting consumption. The agency also observed that weak diesel deliveries in the U.S. at the beginning of the year contributed to a contraction in OECD oil demand during the first quarter.

Dollar Decline Supports Oil Prices Amid Cooling Inflation

The falling dollar provided additional support for oil prices following U.S. consumer price index data that revealed inflation slowed more than expected last month.

Since oil is priced in dollars, a weaker dollar makes oil more attractive to foreign buyers. The consumer price index registered a 0.3% increase in April, down from 0.4% in the previous month and below the expected rate of 0.4%. This brought the annual inflation rate down to 3.4%, from a prior rate of 3.5%.

This combination of factors has contributed to a more favorable environment for oil prices despite worries stemming from the IEA’s forecasts.