Oil Prices Inch Up in Asian Trade Despite US Stockpile Increase
During Asian trade on Wednesday, oil prices saw a slight increase despite a surprise jump in US stockpiles. The rise was driven by geopolitical risks stemming from the Middle East conflict and predictions of an eventual inventory drawdown in the peak demand season of the third quarter, as reported by Reuters.
Brent and WTI Futures Rise
Brent crude oil futures climbed 41 cents, or 0.48 percent, to reach $85.42 a barrel by 9:13 a.m. Saudi time. Meanwhile, US West Texas Intermediate crude futures saw a gain of 46 cents, or 0.57 percent, reaching $81.29 per barrel.
Market Anticipates Inventory Drawdown
Suvro Sarkar, energy sector team lead at DBS Bank, noted, “It seems the market is shrugging off demand concerns for now, anticipating inventory drawdowns in peak third quarter demand season. Official Energy Information Administration inventory numbers today will provide the market further pointers on the trend.”
Geopolitical Risks and OPEC+ Cuts Support Prices
Despite the increase in US stockpiles, the market is expected to find support due to ongoing cuts from OPEC+ and stronger seasonal demand in the third quarter, according to Warren Patterson, head of commodities strategy at ING.
Additionally, increasing geopolitical risks from Houthi attacks in the Red Sea and Israel-Hezbollah hostilities in Lebanon are also contributing to bullish sentiment in the oil market, as highlighted by DBS’ Sarkar.
Signs of Tightening Market
Analysts are observing signs of a tightening market, with strong physical demand for oil reflected in front-month prices. The strengthening backwardation in Brent and WTI structures is also a positive indicator for oil prices in the near-term, according to JP Morgan analysts.
Disruption in Red Sea Shipping Lanes
The Yemeni Houthi group’s attacks in the Red Sea have disrupted shipping lanes, causing concerns over freight flow. The group has sunk two vessels and seized another, with ongoing missile strikes affecting maritime operations in the region.