Oil prices experienced an increase during Asian trading on Wednesday, maintaining proximity to a 10-month high. This came as the Organization of Petroleum Exporting Countries (OPEC) projected tighter supplies, though the anticipation of crucial US inflation data and indications of growing inventories curbed gains.
Crude prices surged significantly on Tuesday, reaching their highest levels for the year. This followed OPEC’s monthly report, which indicated that oil markets are set to further tighten this year due to robust demand and reduced production.
This forecast emerged shortly after Saudi Arabia and Russia, two of the world’s largest oil producers, announced more extensive supply cuts for the remainder of 2023. This triggered sharp increases in oil prices and is expected to provide ongoing support in the coming months.
Brent oil futures increased by 0.2% to $92.17 per barrel, while West Texas Intermediate crude futures rose by 0.1% to $89.02 per barrel as of 21:02 ET (01:02 GMT). Both contracts were hovering near their highest levels since November 2022.
Market conditions showed short-term tightness due to supply disruptions in Libya caused by a severe storm. Additionally, Kazakhstan declared a reduction in its daily oil output for maintenance purposes.
However, on the demand side, US inventory data suggested that fuel consumption in the world’s largest economy might be moderating following a robust summer season.
US Inventories Expected to Rise in the Past Week – API
Data from the American Petroleum Institute (API) indicated that US crude inventories likely increased by 1.2 million barrels in the week ending September 8. This contradicted market expectations of a 2 million barrel decline. The data also revealed a buildup of over 4 million barrels in gasoline inventories and a 2.6 million barrel rise in distillates. This occurred as the travel-heavy summer season drew to a close, typically marked by the Labor Day holiday.
API data often foreshadows similar figures from government data, which is expected later in the day. Analysts anticipate a stockpile reduction of 2.3 million barrels, following a nearly 6 million barrel reduction in the previous week.
CPI Data and Inflation Outlook
Market participants were also eagerly awaiting key US consumer price index (CPI) inflation data, expected to show an acceleration of inflation in August, primarily driven by rising fuel prices.
Persistent signs of inflation could prompt the Federal Reserve to raise interest rates, potentially impacting economic activity and oil demand in the coming months. The Fed is scheduled to make its interest rate decision next week.
Furthermore, a hawkish stance by the Fed could lead to a stronger US dollar, potentially limiting further gains in oil prices. The greenback remained just below six-month highs on Wednesday.
Additionally, this week brings Chinese economic indicators, with industrial production and retail sales data scheduled for release on Friday.