Oil prices experienced a decline on Thursday, interrupting a three-day winning streak, with concerns over diminished demand triggered by an unexpected U.S. crude inventory build overshadowing anxieties related to global trade disruptions amid Middle East tensions.
As of 0303 GMT, Brent crude futures dropped by 22 cents (0.3%) to $79.48 per barrel, while U.S. West Texas Intermediate crude stood at $74 per barrel, marking a similar 22-cent decline or 0.3%.
The previous three sessions had seen both benchmarks closing higher, fueled by apprehensions about potential trade disruptions. Maritime carriers had opted to avoid the Red Sea route, raising concerns about increased transport and insurance costs for longer voyages.
Factors Contributing to Decline:
Low Global Demand: Market focus shifted back to concerns about sluggish global demand, particularly as disruptions in the Red Sea were perceived to have limited impact on oil unless they spill over into the Strait of Hormuz.
U.S. Crude Inventory Build: The U.S. Energy Information Administration (EIA) revealed on Wednesday that U.S. crude inventories unexpectedly rose by 2.9 million barrels in the week ending December 15, reaching 443.7 million barrels. Analysts had anticipated a 2.3 million barrel decline.
Record U.S. Crude Production: The EIA report also highlighted a record U.S. crude output of 13.3 million barrels per day (bpd) for the previous week, surpassing the previous all-time high of 13.2 million bpd.
Limited Impact on Oil Supply: Although trade disruptions were feared due to major maritime carriers avoiding the Red Sea route, analysts noted that the impact on oil supply has been limited so far, with the bulk of Middle East crude being exported via the Strait of Hormuz.
Outlook and Predictions:
Naohiro Niimura, a partner at Market Risk Advisory, predicted that, given the absence of additional production cuts by OPEC+ this year, oil prices would likely remain within a certain range through the end of the year. He suggested that the focus would shift to key economic statistics and the reaction of the U.S. dollar.
Niimura anticipated that WTI would trade between $70 and $75 in the current month.
Furthermore, changes announced by the U.S.-led coalition imposing a price cap on seaborne Russian oil were expected to make it more challenging for Russian exporters to bypass the cap, according to the Treasury Department.