Massive Stockpile Build Ignored But Familiar Fed Warning Spooks Oil Traders

Numerous bullish signals also failed to sway oil prices: File Image/Pixabay

News on Wednesday of big U.S. crude inventory builds on top of the ongoing worry about rising interest rates slowing the economy had a mildly negative effect on oil traders, who caused the commodity to dip by a mild 0.6 percent.

Brent slid 20 cents, or 0.2 percent, to $85.38 per barrel, and West Texas Intermediate fell 47 cents, or 0.6 per cent, to $78.59 after the Energy Information Administration reported that U.S. crude stockpiles jumped by 16.3 million barrels last week to 471.4 million barrels.

This was the highest climb since June 2021 and bigger than the 1.2 million barrel increase forecast in a Reuters poll.

But analysts shrugged off the news, noting that an unusually large crude oil supply adjustment contributed to the outsized build; instead, they were wary of Federal Reserve officials saying it will need to maintain gradual interest rate increases to fight inflation (a message the central bank has been sending for months now).

Edward Moya, senior market analyst at Oanda, said, "Crude prices are under pressure as the dollar rallies following impressive economic data that paves the way for more Fed tightening."

On the bullish side, traders continued to be buoyed by the International Energy Agency raising its 2023 forecast for oil demand growth and anticipating a supply deficit in the second half due to restrained production from the Organization of the Petroleum Exporting Countries (OPEC).

More bullish news on Wednesday came in the form of major oil producers, including Petroliam Nasional and Hess Corp., locking in hedges to protect against falling prices: a sure sign that markets are stabilizing.

Also, Exxon Mobil Corp. said it's forming a global trading division to compete more aggressively with BP Plc and Shell Plc in the energy derivatives sector.

In addition, Bloomberg reported on Wednesday that following China's abandonment of economy-crippling Covid lockdown policies, its citizens are returning to the skies and causing a massive surge in jet fuel demand – which the news agency regards as "the final piece of the post pandemic recovery in oil demand."