Oil prices steady as markets watch US inventories, Red Sea risks

Investing.com– Oil prices steadied in Asian trade on Wednesday as signs of an unexpected build in stockpiles raised concerns over less tight markets in 2024, although rising geopolitical unrest in the Middle East kept prices trading at two-week highs.

Crude prices rebounded sharply from near five-month lows this week as attacks by the Yemen-backed Houthi group on vessels in the Red Sea heralded potential disruptions in Middle Eastern oil supplies.

The U.S. announced the formation of a naval task force to police the region, as a slew of oil companies and shipping operators said they will avoid the Suez Canal and take the longer route around the Cape of Good Hope.

The move points to potential delays in fuel deliveries to Europe and across the Atlantic, given that about 12% of global shipping traffic passes through the canal.

The Houthi attacks were reportedly in retaliation for the Israel-Gaza war, after the U.S. vetoed a United Nations motion for a ceasefire in the conflict. Oil prices shot up on the prospect of more supply disruptions from the conflict, which could potentially draw in other Middle Eastern powers.

expiring January steadied at $79.25 a barrel, while rose 0.2% to $74.34 a barrel by 20:48 ET (01:48 GMT). Both contracts were trading close to two-week highs.

US oil inventories see unexpected build- API

But oil’s latest rebound was somewhat stalled by data from the (API) showing that U.S. crude inventories unexpectedly rose in the week to Dec 15.

API data showed that stockpiles grew 0.9 million barrels, flipping expectations for a draw of 2.2 million barrels.

The reading indicated that U.S. supplies remain plush going into 2024, as production reached record-high levels to fill an output gap left by the Organization of Petroleum Exporting Countries (OPEC).

The API data usually heralds a similar reading from due later on Wednesday, which is also expected to shed more light on U.S. fuel demand and refinery output going into the end of 2023.

Demand in the world’s largest fuel consumer eased over the past two months, albeit largely due to season trends as the winter season began.

The prospect of no more interest rate hikes by the Federal Reserve saw markets grow more optimistic over demand in the coming year, although well-supplied markets are expected to diminish any major gains in oil prices.

Investment bank Goldman Sachs recently cut its forecast for in 2024 by $10 to a range of $70 to $90 a barrel, citing expectations of strong supply. But the bank also expects demand to remain relatively strong, especially as U.S. interest rates fall and China’s economy recovers.

Concerns over high supply and depressed demand- especially in the light of weak economic readings from China- put oil prices close to five-month lows earlier in December. Brent and WTI prices are still set to end 2023 in the red.

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