Oil prices dipped in Asian trading on Thursday, reflecting unease among investors after a surprising build in U.S. gasoline stocks ahead of the Thanksgiving holiday. The unexpected increase sparked concerns over demand in the world’s largest consumer of motor fuel.
Brent crude futures slipped by 4 cents, or 0.1%, to settle at $72.79 per barrel by 0220 GMT. Similarly, U.S. West Texas Intermediate (WTI) crude futures edged down by a cent to $68.71 a barrel. Trading volumes were expected to be thin due to the U.S. holiday, further amplifying price volatility.
Data from the U.S. Energy Information Administration (EIA) released on Wednesday revealed a 3.3-million-barrel increase in gasoline inventories for the week ending November 22. This rise caught analysts off guard, as markets had been anticipating a marginal drawdown of 46,000 barrels based on a Reuters poll conducted prior to the report.
The unexpected buildup occurred against the backdrop of predictions for record holiday travel in the United States, a period typically associated with increased fuel consumption. Analysts suggest that higher refinery runs and weaker-than-expected demand in the run-up to Thanksgiving may have contributed to the surplus.
The surprising stock increase underscores a broader trend of slowing fuel demand growth in the United States and China. As the world’s two largest economies, their energy consumption patterns significantly influence global oil markets. Both countries have seen subdued economic activity this year, creating downward pressure on prices.
These demand concerns come despite ongoing production curtailments from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a coalition known as OPEC+. Supply reductions have been a key factor in preventing a steeper slide in oil prices.
OPEC+, which collectively produces nearly half of the world’s oil, is set to meet on Sunday to discuss production policy for early 2025. The group has been gradually rolling back production cuts, with plans for small monthly increases stretching into next year. However, sources within the organization suggested to Reuters earlier this week that a further delay to these output hikes is under consideration.
The deliberations reflect a delicate balancing act for OPEC+ as it navigates the twin challenges of moderating demand and the risk of oversupply. A cautious approach could help stabilize prices in the face of market headwinds, including the recent surge in U.S. gasoline stocks.
Adding to this week’s price pressures, the announcement of a ceasefire between Israel and Hezbollah in Lebanon has eased immediate concerns about supply disruptions in the oil-rich Middle East. The ceasefire, which began on Wednesday, followed weeks of heightened tension that had stoked fears of broader conflict in the region.
Despite the short-term relief, market participants remain wary. Analysts at ANZ Bank noted the uncertainty surrounding the duration of the ceasefire and the broader geopolitical risks that continue to loom over oil markets.
Market analysts are divided on the future trajectory of oil prices. While the current bearish sentiment reflects demand-side worries, some experts argue that prices are undervalued. Heads of commodities research at Goldman Sachs and Morgan Stanley recently emphasized the ongoing market deficit, suggesting that supply constraints could lend support to prices in the medium term.
The possibility of renewed U.S. sanctions on Iranian oil under the administration of President-elect Donald Trump adds another layer of complexity. Sanctions could potentially tighten global supply, offsetting some of the demand-side pressures and providing upward momentum for prices.
With U.S. markets largely subdued during the Thanksgiving holiday, trading activity in oil futures has been lighter than usual. Thin liquidity often exacerbates price movements, creating a more volatile environment for traders.
Holiday travel, which typically boosts gasoline demand, has yet to deliver the anticipated drawdown in inventories. Analysts will closely monitor post-holiday data to gauge whether the current trend reflects a temporary anomaly or a more sustained shift in consumer behavior.
Several factors are expected to shape oil market dynamics in the coming weeks and months:
- OPEC+ Policy Decisions: The outcome of Sunday’s meeting could have significant implications for supply levels in early 2025.
- Economic Signals from the U.S. and China: Indicators of economic health in these major economies will be critical in assessing future demand.
- Geopolitical Developments: The Middle East remains a perennial source of uncertainty for oil markets, with the potential for renewed tensions to disrupt supply.
- U.S. Gasoline Demand Trends: The holiday travel season and subsequent inventory data will provide key insights into domestic consumption patterns.
- Sanctions and Regulatory Changes: Potential shifts in U.S. policy toward Iran could tighten global supply, adding complexity to market forecasts.
