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Investing.com — Oil prices fell slightly on Wednesday, reversing strong gains in the previous session, as supply disruptions in the Red Sea and the possibility of a U.S. interest rate cut as early as 2024 provided some support for crude oil.
Prices were also encouraged by the US government finalizing contracts to purchase three million barrels of oil, with the aim of replenishing the Strategic Petroleum Reserve (SPR) after drawing the reserve to its lowest levels in almost 40 years earlier this year.
Shipping disruptions in the Red Sea caused by attacks on ships by Yemen’s Iran-aligned Houthi group have been a major point of support for prices in recent weeks, especially as the conflict heralds potential delays in deliveries through the Suez Canal.
The conflict showed few signs of de-escalation, with the United States launching a naval task force to impose peace in the region. The war between Hamas and Hamas – which is at the heart of the latest Houthi strikes – is still ongoing, with Israel looming for several more months of war.
Aside from geopolitical turmoil, oil prices were also supported by the possibility of lower US interest rates in 2024, with recent data pointing to a continued slowdown in US inflation. Lower interest rates are expected to boost economic growth and potentially increase demand for crude oil, although the Federal Reserve’s plans to start cutting interest rates remain uncertain.
Crude futures expiring in February fell 0.58% to $80.37 per barrel, while West Texas Intermediate crude futures fell 0.73% to $75.03 per barrel by 14:15 Riyadh time. Both contracts rose more than 2% each on Tuesday.
US inventories were awaited and data was delayed
The focus is now on US inventory data due later on Wednesday and Thursday for further evidence of supplies in the world’s largest fuel consumer.
The release of this week’s inventory data was delayed by a day due to the Christmas holiday on Monday.
A series of increases in US inventories over the past few weeks has shaken oil markets, especially since rising gasoline and distillate stocks indicate a slowdown in fuel demand in the country.
The increases also point to less tight markets in 2024 than initially expected, a trend that is expected to keep oil prices low.
Oil is headed for losses in 2023
Despite the recent gains, Brent and WTI futures are still on track to lose about 7% each in 2023.
Concerns about China, the world’s largest importer of crude oil – with an economic recovery failing to materialize – had a major impact on prices, as did fears of a slowdown in global demand for crude oil due to rising interest rates and inflation.
Oil supplies are also expected to be less tight than initially expected in early 2024, following disappointing production cuts from the Organization of the Petroleum Exporting Countries (OPEC), while US production remains at record levels.
2023-12-27 11:17:00
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