Oil prices experienced a decline in Asian trade on Wednesday, driven by industry data revealing an unexpected, substantial build in U.S. inventories, which challenged the perception of tighter markets in the near term. Additionally, pressure from a resilient dollar, coupled with anticipation of further cues on U.S. inflation and interest rates, contributed to pulling crude prices lower from their four-month highs reached earlier in March.
Brent and WTI Futures: Brent oil futures for May delivery dropped by 0.8% to $85.55 a barrel, while West Texas Intermediate (WTI) crude futures fell by 0.7% to $81.05 a barrel by 21:39 ET (01:39 GMT).
US Crude Inventories Surge: Data from the American Petroleum Institute (API) revealed a significant build of 9.3 million barrels in U.S. crude inventories for the week ending March 22, contrasting with the previous week’s drop of 1.5 million barrels. This reading exceeded expectations for a draw of 1.2 million barrels and raised doubts about the tightness of U.S. crude markets, especially as oil production remained at record highs exceeding 13 million barrels per day.
Impact on Oil Prices: Expectations of tighter global oil supplies, driven by Russian supply cuts, geopolitical disruptions in the Middle East, and increased U.S. refinery activity, had previously propelled oil prices to four-month highs. However, the unexpected surge in U.S. inventories prompted profit-taking in crude markets, as it challenged the narrative of tight markets.
Global Fuel Market Dynamics: Despite the decline in oil prices, global fuel markets are anticipated to remain tight, particularly with Russia reducing its gasoline production due to Ukrainian attacks on its refineries.
Impact of Dollar Strength: The strength of the dollar, which hovered near one-month highs, also weighed on oil prices, as traders shifted into the greenback ahead of upcoming cues on U.S. inflation and interest rates. The PCE price index data, the Federal Reserve’s preferred inflation gauge, is scheduled for release on Friday and is expected to influence the central bank’s outlook on interest rate cuts. Additionally, speeches from major Fed officials, including Chair Jerome Powell and FOMC member Mary Daly, are anticipated on the same day.
Overall, oil prices faced downward pressure due to the unexpected increase in U.S. inventories, coupled with the influence of a resilient dollar and anticipation of key economic data and Fed commentary later in the week.