The rebound in oil prices on Thursday followed a decline in the previous session, with market sentiment buoyed by declines in U.S. crude and gasoline inventories. This positive development countered concerns stemming from indications that the U.S. Federal Reserve might maintain higher interest rates for an extended period, potentially dampening future fuel demand outlook.
Brent crude oil futures for May settlement rose by 0.6%, or 52 cents, reaching $86.47 a barrel at 0155 GMT, after experiencing a 1.6% drop on Wednesday. Similarly, U.S. West Texas Intermediate (WTI) futures for May delivery increased by 0.5%, or 45 cents, reaching $81.72 a barrel, following a 1.6% decline in the previous session. The April contract expired on Wednesday, ending down 2.1% at $81.68.
The U.S. Energy Information Administration (EIA) reported a second consecutive week of crude inventory declines in the world’s largest oil consumer, the United States. Crude stockpiles unexpectedly decreased by 2 million barrels to 445 million barrels in the week ending March 15, contrasting with analysts’ projections of a 13,000-barrel rise. This reduction was attributed to rising exports and continued activity among refiners.
Furthermore, gasoline inventories registered their seventh consecutive weekly decline, dropping by 3.3 million barrels to 230.8 million. This decline suggests a sustained level of robust fuel demand, further supporting market sentiment.
The oil market received some support as oil refinery runs increased by 127,000 barrels per day, accompanied by rising utilization rates. These developments helped counterbalance the mixed outlook on rate cuts from U.S. Federal Reserve policymakers, which had initially impacted prices.
Although the Federal Reserve opted to maintain interest rates within the 5.25% to 5.50% range on Wednesday, policymakers hinted at a potential reduction in rate cuts this year, indicating that rates might remain elevated for an extended period. The prospect of higher rates over a prolonged duration could potentially curb economic growth, consequently affecting future fuel demand.
Moreover, lingering concerns surrounding Ukrainian attacks on Russian refineries have also contributed to supporting oil prices. These attacks, amid a prolonged conflict spanning over two years, have targeted at least seven refineries this month alone. As a result, around 12% of Russia’s total oil processing capacity, equivalent to approximately 370,500 barrels per day, has been disrupted, according to Reuters calculations.
Analysts from ANZ Research emphasized the market’s apprehension regarding ongoing supply-side issues, particularly the impact of Ukrainian attacks on Russian oil infrastructure. The disruptions have the potential to tighten the global petroleum market, especially amidst ongoing production cuts by the Organization of the Petroleum Exporting Countries (OPEC).
Prolonged disruptions in Russian refining capacity could compel Russian producers to reduce supply if they encounter difficulties in exporting crude oil and face storage limitations. This scenario underscores the intricate interplay between geopolitical tensions and oil market dynamics, highlighting the potential for supply constraints to influence global oil prices in the foreseeable future.
