Oil Prices Decline as U.S. Fuel Inventories Increase

BY COMFORT OGBONNA

Oil prices declined for a second consecutive day on Thursday following a significant increase in U.S. fuel inventories, even as expectations of rising winter fuel demand and concerns over tighter supply limited the losses.

Brent crude futures fell by 8 cents to $76.08 per barrel as of 12:09 a.m. EST, while U.S. West Texas Intermediate crude futures dropped by 11 cents to $73.21 per barrel. Both benchmarks were down approximately 0.1% from the previous session.

On Wednesday, both crude benchmarks fell by more than 1%, pressured by a stronger U.S. dollar and a larger-than-expected rise in U.S. fuel stockpiles. According to the U.S. Energy Information Administration (EIA), gasoline inventories increased by 6.3 million barrels last week to 237.7 million barrels, far exceeding analysts’ expectations of a 1.5 million-barrel build. Distillate stockpiles rose by 6.1 million barrels to 128.9 million barrels, compared to forecasts of a 600,000-barrel rise.

In contrast, U.S. crude oil inventories fell by 959,000 barrels, against analysts’ projections of a 184,000-barrel draw.

“Increased U.S. fuel inventories triggered some selling, but losses were limited by the winter demand season in the Northern Hemisphere,” said Hiroyuki Kikukawa, president of NS Trading, a division of Nissan Securities.

Analysts at JPMorgan anticipate global oil demand in January will grow by 1.4 million barrels per day year-over-year to 101.4 million bpd, largely due to increased use of heating fuels in the Northern Hemisphere.

“Global oil demand is expected to stay robust throughout January, driven by colder-than-average winter weather boosting heating fuel usage, as well as earlier travel activity in China ahead of Lunar New Year holidays,” JPMorgan analysts stated.

Despite the recent decline in prices, the Brent futures market structure signals growing trader concerns about tightening supply amid rising demand. The premium of Brent’s front-month contract over the six-month contract widened to its highest level since August on Wednesday. This market condition, known as backwardation, often indicates declining supply or increasing demand.

Looking ahead, China’s demand trends, U.S. energy and trade policies under the incoming administration, and the approach to the Russia-Ukraine conflict are expected to be key factors influencing the market, Kikukawa noted. He added that traders might avoid taking significant positions until President-elect Donald Trump assumes office on January 20.