Oil prices declined on Wednesday over an expected rise in US crude oil inventories in the world’s largest oil-consuming country and despite the declining value of the US dollar that is making dollar-indexed crude oil cheaper.
International benchmark Brent crude was trading at $106.12 per barrel at 10.12 a.m. local time (0712 GMT) for a 1.15% decrease after the previous session closed at $107.35 a barrel.
American benchmark West Texas Intermediate (WTI) was at $99.27 per barrel at the same time for a 1.46% drop after the previous session closed at $100.74 a barrel.
Late Tuesday, the American Petroleum Institute (API) announced its estimate of a rise of over 1.86 million barrels in US crude oil inventories relative to the market expectation of a 333,000-barrel increase.
The predicted increase in stockpiles signals a drop in crude demand in the US, the world’s top oil consumer, putting downward pressure on prices.
Prices are also coming under downward pressure from rising inflation amid the threat of a global economic recession and ahead of an expected meeting of the US Federal Reserve next week.
‘I think the Fed did something very right for once, which was to put this hundred basis point increase on the table. It is a deliberate attempt and message to the market that they want to get inflation under control more than avoiding a recession,’ said Christof Ruhl, a senior research scholar at the Center on Global Energy Policy of Columbia University in New York City, in his daily energy markets review for Gulf Intelligence Consultancy firm.
Ruhl said it is much harder to dislodge persistent inflationary expectations than it is to cure a recession.
Lockdowns in China and fears of falling oil demand in the world’s second oil-consuming country are other factors weighing on prices.
Ruhl said the Chinese economy is still performing very poorly.
‘I think that by the summer, we could see quite a significant Chinese stimulus for consumers. The question then will be whether that will have an impact on the rest of the world and whether it will boost exports into China of raw materials and oil. It is just a matter of size,’ he said, adding that if it is big enough, it will boost demand for commodities and oil, at least temporarily.
Limiting further price declines, the US dollar index, which measures the value of the American dollar against a basket of currencies, including the Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, fell 0.12% to 106.56 earlier Wednesday.
The decline in the value of the greenback is encouraging oil-importing countries to purchase more crude oil at cheaper dollar prices in support of higher crude prices.
