Oil prices muted after surprise US inventory build; CPI data awaited

Investing.com-- Oil prices moved little in Asian trade on Thursday after official data showed an unexpected weekly build in U.S. inventories, while traders also remained on edge before key U.S. inflation data.

Crude prices settled lower on Wednesday, erasing early gains after the release of the Energy Information Administration (EIA) inventory data, which contrasted market expectations and earlier industry data that signaled a weekly draw in U.S. stockpiles.

A second straight week of massive builds in gasoline and distillate stockpiles was a key point of contention for oil bulls, with the builds indicating further weakness in U.S. fuel demand. This notion was exacerbated by a severe winter storm in large swathes of the country, which further disrupted road travel in the world’s largest fuel consumer.

Concerns over U.S. fuel demand tied into fears that global oil consumption will slow in 2024 which, coupled with well-supplied markets, bodes poorly for oil prices.

Brent oil futures expiring March rose 0.1% to $76.92 a barrel, while West Texas Intermediate crude futures fell 0.1% to $71.36 a barrel by 20:08 ET (01:08 GMT).

Both contracts have seen largely choppy price action so far in 2024, as markets weighed potential disruptions in Middle Eastern supplies against fears of worsening demand. Pressure from a rebound in the dollar also limited any major gains in crude.

Brent and WTI futures were nursing an over 10% decline in 2023.

US inventories unexpectedly rise, product stockpiles see massive builds

EIA data showed U.S. crude inventories grew by 1.3 million barrels in the week to January 5, beating estimates for a draw of 0.7 million barrels and after seeing a draw of 5.5 million barrels in the final week of 2023.

While the build was minimal, oil markets were dealt negative signals from a second straight week of large product inventory builds. Gasoline stockpiles grew about 8 million barrels after surging 10.9 million barrels in the prior week, while distillates stockpiles grew 6.5 million barrels, following a 10.1 million barrel build. Both builds also handily beat estimates.

The sharp builds in product inventories spurred concerns over fuel demand in the country, which has weakened in recent months due to reduced travel during the winter season.

But the slowdown also added to fears that global oil demand will soften in 2024, amid pressure from high interest rates and potentially sticky inflation.

US CPI inflation awaited amid doubts over early rate cuts

Markets were now focused squarely on upcoming U.S. consumer price index data, due later in the day, for more cues on the path of interest rates.

The reading is expected to show a mild increase in headline inflation, while core CPI is expected to ease further.

But whether the reading will result in early interest rate cuts from the Fed remained unclear, especially given that inflation is still expected to remain well above the central bank’s 2% annual target. This notion has seen traders begin questioning whether rate cuts will come as soon as March 2024.

The central bank is still expected to eventually begin trimming interest rates in 2024- a scenario that bodes well for oil demand and prices.

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