Oil prices edge lower as rise in US crude stocks offsets hopes of an economic rebound

The International Monetary Fund marginally raised its forecast for the global economy for this year and the next

An oil storage centre in California. US crude stocks rose by 1.32 million barrels in the week that ended on July 21. Reuters

Oil prices fell on Wednesday as an unexpected rise in US crude stocks offset optimism about the world's economic recovery.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.38 per cent lower at $83.32 a barrel at 9.10pm UAE time while West Texas Intermediate, the gauge that tracks US crude, was down 0.50 per cent at $79.23.

On Tuesday, Brent settled 1.09 per cent higher at $83.64 a barrel while WTI was up 1.13 per cent at $79.63.

The lack of new details on China’s stimulus measures “is stalling any reaction in the markets and only once we get that can we determine how effective it will be in stimulating demand”, said Craig Erlam, a senior market analyst at Oanda.

“We've already seen some powerful gains over the last four weeks … that was driven by cuts from Saudi Arabia and Russia and then better economic readings elsewhere that supported the case for a soft landing following a very aggressive monetary tightening cycle,” Mr Erlam said.

The International Monetary Fund on Tuesday marginally raised its forecast for the global economy for this year and the next but said it was “not out of the woods” due to headwinds that persist, despite the recovery being on track.

The fund revised its earlier forecast for this year upwards, raising it by 0.2 percentage points to 3 per cent, although lower than the 3.5 per cent expansion recorded in 2022. It is projecting a similar pace of growth in 2024.

Despite the positive developments, “many challenges still cloud the horizon, and it is too early to celebrate”, said IMF chief economist Pierre-Olivier Gourinchas.

US crude stocks, an indicator of fuel demand, rose by about 1.32 million barrels in the week that ended on July 21, according to the American Petroleum Institute.

Analysts polled by Reuters were expecting a drop of 2.3 million barrels.

The US Energy Information Administration will release its weekly crude inventory data later today.

The US Federal Reserve’s policy meeting started on Tuesday, with markets expecting it to increase its benchmark interest rate by a quarter of a percentage point.

This would raise the federal funds rate to between 5.25 per cent and 5.5 per cent, the highest level since 2001.

Last month, the Fed paused raising interest rates for the first time since it started its monetary tightening cycle in March 2022 to assess the effect on the economy.

It signalled it would resume raising rates again this year if needed.

High interest rates can dampen economic growth and lower crude demand.

“Progress on inflation could mean both the Fed and the European Central Bank are about to announce their final rate hikes of the tightening cycle,” Mr Erlam said.

“The question is will they acknowledge that or maintain a hawkish position over the rest of the summer?”

Oil prices have posted four straight weeks of gains amid signs of tightening crude supply and as cooling inflation in major economies has eased concerns about further interest rate increases.

Earlier this month, Saudi Arabia, the world’s largest crude exporter, said it would extend its voluntary output cut of a million barrels per day until August.

Russia will also cut its oil supplies by 500,000 bpd in August on top of the output reductions that have already been announced.

On June 4, Opec+ agreed to keep its current output policy in place until the end of 2024.

The group has total production curbs of 3.66 million bpd, or about 3.7 per cent of global demand, in place, including a two million bpd reduction agreed on last year and voluntary cuts of 1.66 million bpd announced in April.