Oil Prices Decline Amid Rising U.S. Fuel Inventories

Oil prices saw a decline for the second consecutive day on Thursday, primarily due to significant increases in fuel inventories in the United States, which is the world's largest oil consumer. While these rising inventories contributed to the price drop, expectations for greater winter fuel demand and concerns regarding tightening supply helped to limit the decline.

Brent crude futures decreased by 8 cents, settling at $76.08 a barrel by 0409 GMT on Thursday. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures experienced a drop of 11 cents, reaching $73.21. Both benchmarks recorded a decrease of around 0.1% compared to the previous session.

The day before, on Wednesday, both oil prices fell by over 1%. A stronger dollar and a larger-than-anticipated increase in U.S. fuel stockpiles were significant factors driving the prices lower.

According to the U.S. Energy Information Administration, gasoline inventories rose by 6.3 million barrels last week, reaching a total of 237.7 million barrels. Analysts had anticipated an increase of only 1.5 million barrels.

Similarly, distillate inventories increased by 6.1 million barrels during the week, which brought the total to 128.9 million barrels. This was much higher than the expected rise of 600,000 barrels.

On the other hand, crude oil inventories fell by 959,000 barrels during the same period, contrasting with the analysts' forecast of a 184,000-barrel draw.

According to Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities, "Increased U.S. fuel inventories prompted some selling, but the downside is limited due to the winter demand season in the northern hemisphere."

Analysts from JPMorgan predict that oil demand in January could increase by 1.4 million barrels per day year-on-year, reaching a total of 101.4 million barrels per day. This growth is mainly attributed to the rising use of heating fuels during the colder months in the Northern Hemisphere.

The analysts stated, "Global oil demand is expected to remain strong throughout January, fueled by colder-than-normal winter conditions that are boosting heating fuel consumption, as well as an earlier onset of travel activities in China for the Lunar New Year holidays."

Despite the dip in prices, the market structure within Brent futures indicates a growing concern among traders regarding supply constraints even as demand rises. The premium of the first-month Brent contract over the six-month contract reached its highest level since August on Wednesday. A widening backwardation—where futures for earlier delivery are priced higher than for later delivery—often signals declining supply or increasing demand.

Looking ahead, market participants will closely monitor trends in China’s fuel demand, the incoming U.S. administration’s energy and trade policies, and its position on the ongoing Russia-Ukraine conflict. Kikukawa suggests that traders are likely to hold off on major positions until after President-elect Donald Trump takes office on January 20th.

Oil, Prices, Inventories