Crude Oil Price Update – Massive API Inventories Build Weighs Ahead of EIA Stockpiles Report

U.S. West Texas Intermediate crude oil futures are edging lower for a second session on Wednesday after a private industry report showed an unexpected rise in crude oil inventories.

Traders are also reacting negatively to the prospect of further rate hikes from the Federal Reserve following Tuesday’s stubbornly high U.S. consumer inflation report. Renewed fears that higher rates will lead to weaker fuel demand and economic recession are also weighing on prices.

At 08:07 GMT, April WTI crude oil is trading $78.08, down $1.16 or -1.46%. On Tuesday, the United States Oil Fund ETF (USO) settled at $69.43, down $0.07 or -0.10%.

American Petroleum Institute Weekly Storage Report

Crude oil inventories rose by a massive 10.507 million barrels last week, the American Petroleum Institute (API) data showed late Tuesday. The build was much larger than the 1.2 million-barrel rise that nine analysts polled by Reuters had expected, potentially pointing to a drop in fuel demand.

Gasoline inventories rose by 846,000 barrels after last week’s API data showed the fuel inventories rising by 5.261 million barrels. Distillates rose 1.728 million barrels after rising by 1.109 million bpd in the week prior.

Inventories at Cushing, Oklahoma, increased by 1.954 million barrels on top of the 178,000 barrel hike reported last week.

Stubborn Consumer Inflation, Hawkish Fed Speakers Raise Concerns Over Possible Recession

An acceleration in U.S. consumer prices in January and hawkish comments from Fed speakers warning that the U.S. central bank will need to keep raising interest rates to beat inflation is also weighing on crude oil on Wednesday.

Crude oil prices are being pressured by the belief that the higher interest rates rise in the U.S., the closer the economy moves toward a recession and lower fuel demand.

The Fed Funds rate is now expected to rise to at least 5.2% by June or July, much higher than previously anticipated.

US to Release More Strategic Petroleum Reserve Crude Oil

Prices are also being pressured by an announcement that the U.S. Department of Energy (DOE) would sell 26 million barrels of oil from the nation’s Strategic Petroleum Reserve (SPR), which is already at its lowest level in roughly four decades.

SPR inventory is currently sitting at its lowest level since December 1983.

Short-Term Outlook

Prices are expected to remain under pressure until demand shows up. Bullish traders are waiting for the recovery in China to start bearing some fruit. But now demand in the U.S. is raising concerns. Meanwhile, OPEC drew some support after raising its 2023 global oil demand growth forecast. However, that report is counting on a jump in demand from China.

Tuesday’s API data represented the eighth week of inventory builds. Later today at 15:30 GMT, the U.S. Energy Information Administration’s (EIA) weekly inventories report could be the source of volatility after the API’s unexpected build.