Crude oil futures experienced the biggest one-day drop in over a month as the stronger US dollar offset the decline in inventories. According to news from the financial world, US crude oil inventories saw a historical drop, but the strengthening dollar still exerted pressure on oil prices.
On August 3, West Texas Intermediate crude for September delivery dropped $1.88, or 2.3%, to settle at $79.49 a barrel on the New York Mercantile Exchange. Similarly, global benchmark Brent crude futures for October on ICE Futures Europe fell $1.71 to settle at $83.20 a barrel, a decline of 2%. These losses represent the largest one-day percentage drops since June 27.
Other energy commodities also experienced declines. September gasoline prices fell 3.4% to $2.776 a gallon, while September heating oil prices fell 0.6% to $3.004 a gallon. Furthermore, September natural gas settled at $2.477 per million British thermal units, down 3.2%.
Despite the decrease in inventories, with US crude inventories falling by over 17 million barrels in the week ended July 28, the strengthening US dollar and other factors impacted oil prices. Gasoline inventories, on the other hand, rose by nearly 1.5 million barrels, while distillate stockpiles fell by 0.8 million barrels. Analysts had expected a draw of 3.7 million barrels in crude inventories and a decrease of 1 million barrels in gasoline inventories.
Edward Moya, senior analyst for the Americas at Oanda, explained that the macro backdrop and a stronger dollar were contributing to the decline in oil prices. The US credit rating was downgraded by Fitch Ratings, which negatively impacted overall market sentiment. Additionally, rising US Treasury yields and a planned increase in bond sales by the Treasury Department boosted the US dollar.
Matt Smith, chief Americas oil analyst at Kpler, highlighted that strong crude exports and refinery operations played a role in the significant drop in US crude inventories. However, he emphasized that this drop was a result of timing and should not be expected to continue in the future.
The American Petroleum Institute also reported a decrease in US crude inventories, with a decline of 15 million barrels. Gasoline inventories fell by 1.7 million barrels, and distillates fell by 512,000 barrels.
Looking ahead, analysts anticipate the Federal Reserve to announce rate cuts later in the week, which could extend into September. Additionally, OPEC’s production fell by 900,000 barrels per day in July, the lowest level since 2020. Saudi Arabia had the largest drop in production, with output falling by 810,000 barrels per day.
Despite the decline in inventories, the stronger US dollar and other market factors continue to weigh on oil prices. Analysts suggest that these factors, including the Fed rate cuts and OPEC production levels, will influence the future direction of crude oil futures.