Oil Nosedives Over 3% As Traders Fear Demand Is Tanking

Meanwhile, more signals suggest that OPEC  will maintain its current output

Oil prices on Wednesday took a nosedive, compounding a growing bearish sentiment and driven this time by data showing bigger than expected builds in U.S. crude oil, gasoline, and distillate inventories – which lend credence to analytical fears that demand is on the decline.

The Energy Information Administration disclosed that crude inventories climbed 4.1 million barrels in the week ended Jan. 27 to 452.7 million barrels, the sixth straight weekly build; fuel inventories overall rose to their highest levels since June of 2021.

As a result, jittery traders caused Brent to settle down $2.62, or 3.1 percent, at $82.84 per barrel, while West Texas Intermediate fell $2.46, or 3.1 percent, to settle at $76.41 per barrel.

Stating the obvious, John Kilduff, founding partner at Again Capital, said, "The market is reacting to the report that indicates there isn't demand for crude oil or fuels."

Meanwhile, completely overlooked was the Federal Reserve on Wednesday raising its target interest rate by a mere quarter of a percentage point and stating that "Inflation has eased somewhat but remains elevated."

However, traders presumably focused on the Fed's vow to enact "ongoing increases" in borrowing costs.

More bad news on Wednesday came in the form of an analysis of market conditions in January: Bloomberg noted that oil "capped a third straight monthly loss in January, even amid optimism that China's turn away from its strict Covid Zero policy will rekindle demand in the world's largest crude importer."

However, in the topsy-turvy world of crude trading, every announcement considered bearish seems to be matched by news that would, under any other circumstances, be regarded as mildly positive or at least aligned with analytical expectations, case in point: the Organization of the Petroleum Exporting Countries' (OPEC) Joint Ministerial Monitoring Committee reportedly said on Wednesday that the cartel should maintain its current output levels.

Goldman Sachs Group Inc. and Energy Aspects Ltd. earlier predicted that OPEC will only start to increase production in the second half of the year, when they believe accelerating demand will tighten the market.