Oil prices experienced a decline in Asian trading on Thursday, prompted by official data revealing an unexpected build in U.S. crude inventories. Additionally, the International Energy Agency (IEA) trimmed its forecast for oil demand growth in 2024, signaling a potential supply glut.
Brent oil futures for August delivery dipped by 0.5% to $82.24 a barrel, while West Texas Intermediate crude futures also fell by 0.5% to $77.76 a barrel by 21:31 ET (01:31 GMT).
US Inventories Rise, IEA Forecasts Supply Glut
Government data released on Wednesday disclosed an unexpected increase in U.S. oil inventories during the first week of June, rising by 3.7 million barrels, contrary to the anticipated draw of 1.2 million barrels. Elevated builds in distillates and gasoline stockpiles further fueled concerns that fuel demand might not be picking up as anticipated during the summer season.
Simultaneously, the IEA’s monthly report revealed a slight reduction in its forecast for demand growth in 2024, down by 100,000 barrels per day to 960,000 bpd. The agency cautioned that global oil demand was projected to peak by 2029, followed by a subsequent contraction. Moreover, increased supply from the U.S. and other non-OPEC regions was expected to contribute to a potential supply glut.
This forecast from the IEA contrasted with that of OPEC, which maintained its demand forecast for the year in its monthly report earlier in the week. OPEC also assured markets that any plans to increase production would be contingent on oil prices, following initial intentions to scale back supply cuts this year, which were met with negativity from the markets.
Hawkish Fed Signals and Weaker Dollar Impact
Oil prices saw some support from a weaker dollar, stemming from mixed signals on U.S. interest rates. While U.S. consumer inflation for May came in slightly lower than expected, signaling a potential disinflation trend, the Federal Reserve’s stance on interest rates remained firm. The Fed indicated that it foresaw only one interest rate cut this year, with some members even advocating for no rate cuts, citing persistent inflation.
The prospect of sustained high interest rates poses concerns for economic growth, potentially impacting oil demand in the upcoming months if growth decelerates.
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