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Oil Prices Drop as Inventory Increase Offsets Supply Concerns

by Krystal

Crude oil prices fell today after the American Petroleum Institute (API) reported an unexpected increase in oil inventory. This build eased concerns about global supply.

On Monday, crude oil prices had rebounded slightly after a sharp decline during a stock market drop. The API’s latest report showed an increase of 180,000 barrels in oil inventory for the week ending August 2. Though modest, this build ended a five-week streak of declining inventories and caught traders off guard.

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Fuel inventory builds were more substantial, raising doubts about demand during this peak consumption season. The Energy Information Administration (EIA) will release official inventory data later today. Reuters has highlighted discrepancies between estimated and actual U.S. oil demand, with real demand being stronger than anticipated.

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Concerns about demand continue to impact prices, while geopolitical tensions in the Middle East have so far not significantly affected the market. “Financial market sentiment has stabilized, and crude prices have stopped falling, but it feels like a tentative bottom,” said Vandana Hari, founder of Vanda Insights. “Oil market participants are watching rising Middle Eastern tensions closely but are not yet factoring in a risk premium for supply disruptions.”

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The situation in the Middle East remains tense, particularly with Iran threatening retaliation against Israel for the recent killing of Hamas leader Ismail Haniyeh.

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ANZ analyst Daniel Hynes warned that any escalation in the Middle East could lead to increased risks of supply disruptions.

Additionally, Libya has halted production at its largest field, Sharara, which produces 300,000 barrels daily. This, combined with the EIA’s report of a daily global oil stock decline of about 400,000 barrels, adds to supply concerns.

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