Crude oil prices saw an increase in early Asian trading today. This rise came after an industry report revealed another weekly drop in oil inventories and a smaller-than-expected rise in producer prices, which sparked hopes for a possible interest rate cut.
The American Petroleum Institute (API) reported a decline of 5 million barrels in oil inventories for the past week, following a moderate increase the previous week. Since the start of the year, U.S. oil inventories have grown by about 400,000 barrels, according to API data. The Energy Information Administration (EIA) is set to release its inventory report later today.
In other news, the Bureau of Labor Statistics reported a minimal 0.01% rise in producer prices for July, which was lower than anticipated. Service costs decreased at the fastest rate in nearly 18 months, according to Reuters. This data has bolstered expectations for an interest rate cut, although such a decision by the Federal Reserve remains uncertain.
Christopher Rupkey, chief economist at FWDBONDS, told Reuters, “The cooling in producer price increases is positive for the Fed’s inflation fight. However, since there is no PPI deflation, the Fed doesn’t need to rush into rate cuts, especially as the economy isn’t in serious decline.”
Today’s price increase follows a 2% drop on Tuesday, which was influenced by the International Energy Agency’s (IEA) report warning of slowing demand growth next year. The IEA now forecasts oil demand to grow by 950,000 barrels per day (bpd) in 2025, down by 30,000 bpd from previous estimates.
The IEA also predicted an oil market surplus for the last quarter of this year unless OPEC begins to reverse its production cuts. The cartel has stated it will only adjust its cuts if market conditions warrant such action.
Although the IEA maintained its global oil demand growth forecast, OPEC reduced its demand growth prediction earlier this week, citing disappointing demand from China—a factor contributing to bearish market sentiment this year.
Despite a significant drop in oil prices over the past month, there has been a recent recovery. As fears of a U.S. recession subside, West Texas Intermediate (WTI) prices are approaching $79, and Brent crude is trading comfortably above $81.