Oil Prices Retreat on Surprise US Crude Inventory Build

Oil prices experienced a decline on Thursday, breaking a three-day winning streak, as concerns about reduced demand emerged following an unexpected build in U.S. crude inventories. Despite global trade disruption fears due to tensions in the Middle East, the negative impact of the U.S. inventory increase took precedence.

Brent crude futures saw a decrease of 22 cents (0.3%), reaching $79.48 per barrel by 0303 GMT, while U.S. West Texas Intermediate crude also dropped by 22 cents (0.3%) to $74 per barrel. The previous three sessions had witnessed higher closing for both benchmarks, fueled by apprehensions about trade disruptions. Major maritime carriers had chosen to avoid the Red Sea route, leading to longer voyages and increased transport and insurance costs.

The concerns shifted back to sluggish global demand, with limited impact on oil expected as long as the Red Sea situation does not spill over into the more critical Strait of Hormuz, according to Tsuyoshi Ueno, a senior economist at NLI Research Institute. The pressure on oil prices intensified due to a U.S. crude stock build and record domestic oil production.

The U.S. Energy Information Administration (EIA) revealed on Wednesday that U.S. crude inventories rose by 2.9 million barrels in the week ending December 15, reaching 443.7 million barrels. This contradicted analysts’ expectations, who had anticipated a 2.3 million barrel drop according to a Reuters poll. The EIA also reported a record U.S. crude output of 13.3 million barrels per day (bpd), surpassing the previous high of 13.2 million bpd.

Despite approximately 12% of global maritime traffic passing through the Red Sea and the Suez Canal, the limited impact on oil supply was attributed to the majority of Middle East crude being exported via the Strait of Hormuz.

Analysts are anticipating oil prices to remain within a certain range through the year-end, given the absence of additional production cuts by OPEC+. The focus is expected to shift to key economic statistics and the U.S. dollar’s reaction. Naohiro Niimura, a partner at Market Risk Advisory, suggested that WTI would likely trade between $70 and $75 this month.

In a related development, the U.S.-led coalition enforcing a price cap on seaborne Russian oil announced changes to its compliance regime on Wednesday. The Treasury Department mentioned that these alterations would make it more challenging for Russian exporters to bypass the imposed cap.

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