Oil prices experienced a modest rebound in Asian trading on Wednesday, recovering slightly from recent losses. This uptick followed industry data that revealed a decline in U.S. oil inventories, which bolstered expectations of a tight market in the near term.
Despite this, oil prices have been struggling recently due to a negative outlook for crude, particularly with a projected surplus in 2025. Concerns about China, a major oil importer, and ongoing discussions about a potential ceasefire between Israel and Hamas have also pressured the crude markets.
By 21:02 ET (01:02 GMT), Brent oil futures for September delivery increased by 0.5% to $81.40 per barrel. Meanwhile, West Texas Intermediate (WTI) crude futures rose by 0.4% to $76.22 per barrel. These contracts had earlier fallen to their lowest levels since early June. The strength of the dollar has also contributed to the pressure on crude prices.
Unexpected Drop in U.S. Oil Inventories
Data from the American Petroleum Institute (API) showed an unexpected reduction in U.S. oil inventories. For the week ending July 19, inventories fell by 3.9 million barrels, contrary to expectations of a 0.7 million barrel increase.
This data, which often predicts trends in official inventory reports, indicated a fourth consecutive week of shrinking inventories. This trend is likely due to increased oil demand during the busy summer travel season.
The API report also noted declines in gasoline and distillate inventories, suggesting strong demand in the U.S., the world’s largest fuel consumer. This continued demand is expected to maintain tight conditions in the oil market in the short term.
The official inventory data from the Energy Information Administration (EIA) is scheduled for release later on Wednesday.
Future Oil Market Outlook
Looking ahead, the oil market may experience a shift. Morgan Stanley predicts that a surplus in oil supplies could emerge by early 2025, with crude prices potentially stabilizing in the high $70s by next year. Increased global oil production and anticipated softer demand from China are expected to keep the market well-supplied.
China’s economic recovery has been a concern, with recent data showing slower-than-expected growth in the second quarter and a significant drop in oil imports in June. Additionally, the Third Plenary Session of the Chinese Communist Party offered few hints about further stimulus measures.
There is also uncertainty about how changes in the U.S. administration might affect relations with China, adding to the market’s caution.
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