Oil Prices Drop Amid Ceasefire Hopes and Increased US Production
In a third consecutive day of decline, oil prices took a hit on Wednesday. The drop was fueled by growing optimism surrounding a potential ceasefire agreement in the Middle East, alongside rising crude inventories and production in the US, the largest oil consumer in the world.
Brent crude futures for July saw a decrease of 70 cents, or 0.8 percent, settling at $85.63 per barrel by 7:56 a.m. Saudi time. Similarly, US West Texas Intermediate crude for June experienced a decline of 75 cents, or 0.9 percent, reaching $81.18 per barrel.
The possibility of a ceasefire agreement between Israel and Hamas seemed more likely, as Egypt took the lead in reviving stalled negotiations between the two parties. This development contributed to the downward trend in oil prices.
Despite these positive signals, Israeli Prime Minister Benjamin Netanyahu remained steadfast in his commitment to launch an assault on the southern Gaza city of Rafah. This move was planned regardless of Hamas’ response to the latest proposals for a cessation of hostilities and the return of Israeli hostages.
Adding to the pressure on prices were the swelling US crude oil inventories and the increase in crude supply. US production surged to 13.15 million barrels per day in February from 12.58 million bpd in January, marking the largest monthly rise in approximately 3-1/2 years, as reported by the Energy Information Administration on Tuesday.
Concerns about demand for crude oil were further fueled by ongoing signs of inflation. This uncertainty loomed ahead of the upcoming US driving season, during which gasoline demand typically experiences a significant uptick, according to analysts at ANZ.
To prevent a further slide in oil prices, output from the Organization of the Petroleum Exporting Countries (OPEC) was projected to decrease by 100,000 bpd in April, reaching 26.49 million bpd, as indicated by a Reuters survey on Tuesday. The survey highlighted reduced exports from Iran, Iraq, and Nigeria, set against a backdrop of continued voluntary supply cuts by certain members in alignment with the broader OPEC+ alliance.