Oil prices, which had recently reached a 10-month high, fell on Wednesday due to an unexpected increase in U.S. crude inventories. Despite expectations of shortages for the rest of the year, prices dropped by 18 cents to $91.88 a barrel. The highest session reached $92.84, the highest since November.
Although one-month Brent futures contracts surpassed those for six-month delivery by $4.90 per barrel, indicating a tightening supply, prices rose despite the government’s report showing a rise in U.S. crude, gasoline, and distillate inventories. Analysts had anticipated a drop of 1.9 million barrels, but instead, U.S. crude oil inventories increased by 4 million barrels. Matt Smith, the chief oil analyst for the Americas at Kpler, noted that the solid build in inventories was surprising considering increased refining activity and falling inventories at Cushing, Oklahoma, due to net imports being much larger.
To prevent further price declines, Saudi Arabia and Russia have extended their production cuts of 1.3 million barrels per day (bpd) until the end of the year. This move is expected to create a substantial market deficit until the fourth quarter, according to the International Energy Agency (IEA). Bank of America analysts believe that continued supply cuts could lead Brent futures to exceed $100 per barrel before the year ends. The IEA has revised its global crude oil demand growth forecast for the fourth quarter, lowering it by 600,000 bpd, which Investec analyst Callum Macpherson describes as a significant adjustment. She believes the deficit is now similar to the additional Saudi voluntary cut.
In other news, the Organization of the Petroleum Exporting Countries (OPEC) maintained its forecasts for strong growth in global oil demand in 2023 and 2024. Additionally, four oil ports that had been closed due to strong storms in Libya reopened on Wednesday.
Overall, although there were expectations of oil shortages, the surprise build in U.S. crude inventories caused oil prices to fall. However, extended production cuts by Saudi Arabia and Russia may help support prices and potentially push Brent futures above $100 per barrel later this year. OPEC remains optimistic about future global oil demand, while oil ports in Libya have resumed operations after being impacted by storms.