Oil prices dip after surprise build in US inventories, hawkish Fedspeak

Investing.com-- Oil prices fell in Asian trade on Thursday after official data showed a surprise build in U.S. crude inventories, while the IEA also trimmed its oil demand growth forecast for 2024 and flagged a looming supply glut.

Still, bigger losses in crude were held back as the dollar fell in the wake of soft inflation data, even as the Federal Reserve drastically lowered its outlook for interest rate cuts in 2024. 

Brent oil futures expiring in August fell 0.5% to $82.24 a barrel, while West Texas Intermediate crude futures fell 0.5% to $77.76 a barrel by 21:31 ET (01:31 GMT). 

US inventories rise, IEA forecasts supply glut 

Government data showed on Wednesday that U.S. oil inventories unexpectedly grew in the first week of June- by 3.7 million barrels, against expectations for a draw of 1.2 mb.

Outsized builds in distillates and gasoline stockpiles also drove up concerns that fuel demand was not picking up with the summer season as expected. 

The build in inventories came as a monthly report from the International Energy Agency showed the agency slightly trimming its outlook for demand growth in 2024 by 100,000 barrels per day to 960,000 bpd. 

The IEA also warned that it expected global oil demand to peak by 2029, and that it would then begin contracting in the following years. Increased supply from the U.S. and other regions outside the Organization of the Petroleum Exporting Countries was also expected to create a supply glut eventually. 

The IEA’s forecast contrasted with that of the OPEC, which in a monthly report earlier this week maintained its demand forecast for the year.

The OPEC had also assured markets that any plans to increase production would be largely dependent on oil prices, after initial plans to begin scaling back supply cuts this year were received negatively by markets. 

Hawkish Fed signals, weaker dollar in play

Oil prices benefited from a softer dollar, which fell as markets digested mixed cues on U.S. interest rates.

Broader risk appetite rose as U.S. consumer inflation read slightly lesser than expected for May, which ramped up hopes that the disinflation trade was in play.

But the Fed said it only saw one interest rate cut this year, with some members of the central bank even calling for no rate cuts, in the face of sticky inflation. 

The prospect of high for longer rates bodes poorly for economic growth, and could dent oil demand in the coming months if growth cools.