Oil Prices Settle Lower After Surprise US Inventory Build

Oil prices experienced a decline on Wednesday for the third consecutive day, as an unexpected increase in U.S. inventories raised concerns about demand in the world’s largest crude consumer.

By 14:30 ET, crude oil dropped 1.2% to $81.90 per barrel, while Brent crude fell 1.4% to $77.57 per barrel.

### Unexpected Build in U.S. Inventories

Recent data revealed that U.S. oil inventories rose by 1.8 million barrels last week, defying predictions for a decrease of 2.4 million barrels. This unexpected build has raised concerns about sluggish oil demand in the U.S., especially with the Memorial Day holiday approaching, which typically marks the start of the summer travel season.

Gasoline inventories decreased by approximately 945,000 barrels, contrary to expectations of a 1.6 million barrel draw. Meanwhile, distillate stockpiles increased by 379,000 barrels, against forecasts for a decrease of 100,000 barrels. Traders are worried that ongoing inflation and elevated interest rates may hinder demand growth in the coming months, particularly as gasoline stockpiles also increased by 2.1 million barrels.

### Federal Reserve Minutes Highlight Inflation Concerns

Market sentiment was further impacted by concerns regarding the Federal Reserve’s approach to maintaining higher interest rates for an extended period. Minutes from the Fed’s April 30-May 1 meeting indicated worries among members about a slowdown in the disinflation process. Participants noted that recent data had not bolstered their confidence in reaching the 2% inflation target, suggesting that disinflation may take longer than previously anticipated. This stalling could deter Fed members from advocating for rate cuts in the near term.

### Upcoming OPEC+ Meeting

Looking ahead, attention is also turning toward the upcoming meeting of the Organization of Petroleum Exporting Countries and allies, known as OPEC+, scheduled for early June. This group of major oil producers is currently implementing voluntary output cuts totaling about 2.2 million barrels per day for the first half of 2024, with Saudi Arabia leading the initiative.

Traders are eager for any indications that OPEC+ may extend its current production cuts. Analysts at UBS noted that the less-than-expected decline in oil inventories and the prospect of higher U.S. interest rates could influence OPEC+’s proactive stance. They expect that the eight member states with voluntary production cuts will likely extend them by at least three months ahead of the scheduled ordinary meeting in early June.