Oil prices saw a modest increase on Wednesday, with the potential delay in US interest rate cuts and a higher-than-anticipated surge in US crude stocks offsetting support from the possibility of an extension to OPEC+ supply cuts.
As of 10:50 am EST (1550 GMT), Brent crude futures edged up by 14 cents to reach US$83.79 per barrel, while US West Texas Intermediate futures (WTI) gained 6 cents, reaching US$78.93. Both benchmarks had experienced an initial decline of US$1 in earlier trading.
The early decline in prices was attributed to profit-taking and a combined response to a reported increase in US crude stocks by the American Petroleum Institute this week, along with ongoing hopes for a ceasefire deal in Gaza in the coming
days, according to Vandana Hari, founder of oil market analysis provider Vanda Insights.
The US Energy Information Administration (EIA) reported on Wednesday that US crude inventories had risen by 4.2 million barrels last week, surpassing expectations of a 2.74 million-barrel build.
Federal Reserve Governor Michelle Bowman signaled on Tuesday that there was no urgency to cut US interest rates, especially given ongoing inflation risks. The prospect of higher interest rates, potentially impacting economic growth and reducing oil demand, contributed to the early declines in oil prices.
On Thursday, market participants await the January US personal consumption expenditures (PCE) price index, a crucial measure of inflation for the Fed and a determinant in rate decisions.
“The power of inflationary expectations must not be underestimated,” noted Tamas Varga of oil broker PVM in a Wednesday note. He added, “In case tomorrow’s US PCE reading comes in above expectations, a temporary top might have been found for oil.”
In a positive turn on Tuesday, Brent and WTI futures gained over US$1 a barrel after Reuters reported that the Organization of the Petroleum Exporting Countries and allies led by Russia (OPEC+) would contemplate extending voluntary oil output cuts into the second quarter. Analysts at ANZ Research indicated that such a move by OPEC+ could likely tighten the market.
In a related development, Russian authorities announced on Tuesday a six-month ban on gasoline exports starting March 1. The move aims to address rising demand from consumers and farmers while allowing for planned refinery maintenance.