In Asian trading on Wednesday, oil prices experienced a decline following the release of industry data indicating an unexpected and significant increase in U.S. inventories, challenging the prevailing expectation of tighter market conditions in the near future.
Adding to the downward pressure on crude prices was the strength of the U.S. dollar, which remained resilient ahead of forthcoming data on U.S. inflation and interest rates. These factors combined to push oil prices further away from the four-month highs reached earlier in March.
Brent oil futures for May delivery dropped by 0.8% to $85.55 per barrel, while West Texas Intermediate (WTI) crude futures fell by 0.7% to $81.05 per barrel as of 21:39 ET (01:39 GMT).
The notable fluctuations in oil prices occurred against the backdrop of reduced trading activity ahead of the Good Friday holiday, contributing to lower trading volumes in the market.
US oil inventories surge 9.3 mln barrels- API
According to data released by the American Petroleum Institute (API), U.S. crude inventories experienced a notable build of 9.3 million barrels during the week ending March 22. This marked a significant contrast to the previous week’s decrease of 1.5 million barrels and surpassed expectations for a drawdown of 1.2 million barrels.
Typically, API data tends to foreshadow similar trends in the official U.S. inventory data, which is scheduled for release later on Wednesday. However, Tuesday’s report raised concerns regarding the perceived tightness of U.S. crude markets, particularly as oil production in the country remained at record levels, surpassing 13 million barrels per day.
The anticipation of tighter global oil supplies, fueled by Russian supply constraints, geopolitical disruptions in the Middle East, and increased refinery activity in the United States, had propelled oil prices to their highest levels in four months earlier in March. However, this surge also set the stage for profit-taking in the crude market, especially in light of data that potentially challenged the narrative of tight market conditions.
Nevertheless, global fuel markets are anticipated to maintain tightness, particularly with Russia reducing its gasoline production in response to attacks on its refineries in Ukraine.
Dollar weighs ahead of PCE data, Fed speakers
The strength of the dollar, which remained close to one-month highs, exerted downward pressure on oil prices. Traders shifted their focus towards the greenback in anticipation of upcoming cues on U.S. inflation and interest rates later in the week.
Of particular significance is the release of the Personal Consumption Expenditures (PCE) price index data, scheduled for Friday. The PCE price index is the Federal Reserve’s preferred measure of inflation and is expected to influence the central bank’s stance on potential interest rate adjustments.
In addition to the PCE data, market participants are awaiting addresses from key Federal Reserve officials, including Chair Jerome Powell and FOMC member Mary Daly, also scheduled for Friday. These speeches are likely to provide insights into the Fed’s monetary policy outlook and could influence market sentiment and oil prices.