Oil Prices Increase Amidst U.S. Inventory Decline and Supply Concerns

By Siyi Liu

SINGAPORE (Reuters) - Oil prices experienced gains for the second consecutive session on Thursday. This increase was driven by escalating concerns regarding supply due to U.S. sanctions on Russia, a larger-than-expected decline in oil stocks, and a positive outlook for global demand.

Brent crude futures advanced by 25 cents, or 0.3%, reaching $82.28 per barrel as of 0446 GMT. This follows a 2.6% increase in the previous session, marking the highest price since July 26 of last year.

Meanwhile, U.S. West Texas Intermediate crude futures rose 28 cents, or 0.4%, bringing the price to $80.32 per barrel after a 3.3% increase on Wednesday, which was the highest since July 19.

According to the Energy Information Administration (EIA), U.S. crude oil stocks hit their lowest level since April 2022 last week as exports increased and imports decreased. The reported decline of 2 million barrels surpassed the 992,000-barrel drop that analysts predicted in a Reuters poll.

This reduction in inventory has contributed to a tightening global supply forecast following the broader sanctions imposed by the U.S. on Russian oil producers and shipping vessels. The sanctions have compelled Moscow's key clients to seek alternative sources of oil, resulting in a surge in shipping rates.

Recently, the Biden administration announced additional sanctions targeting Russia's military production capabilities and measures to prevent evasion.

In addition, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, who have been collectively limiting output over the past two years, are expected to remain cautious about increasing supply despite recent price surges. Rory Johnston, the founder of Commodity Context, stated that this producer group has faced setbacks in its optimism over the past year, leading them to be conservative when considering any adjustments to production caps.

A temporary limitation on oil price increases originated from an agreement reached between Israel and Hamas to halt hostilities in Gaza and to exchange hostages.

From a demand perspective, global oil consumption grew by 1.2 million barrels per day in the first two weeks of 2025 compared to the same timeframe last year, which was slightly below expectations, according to analysts at JPMorgan. They predict that oil demand may rise by 1.4 million barrels per day in the upcoming weeks, driven by increased travel during major festivals in India and the anticipated Lunar New Year celebrations in China at the end of January.

Furthermore, some investors are watching for potential interest rate cuts from the U.S. Federal Reserve before year-end, driven by indications of easing core inflation in the country. Such cuts could further support economic activities and boost energy consumption.

Oil, Supply, Inventory