Oil prices retreat on US crude inventories surge, rising CPI

Investing.com-- Oil prices retreated Wednesday, falling back from a two-week high following an unexpected surge in U.S. stockpiles and after strong US inflation data.

At 08:50 ET (13:50 GMT), Brent Oil Futures fell 0.9% to $76.28 a barrel, while Crude Oil WTI Futures expiring in March dropped 1.1% to $72.50 a barrel

Both contracts had gained quite sharply in the last three sessions, pushing them to a two week-high on Tuesday.

US inflation surged in January

U.S. consumer prices rose by more than expected in January, pointing to lingering inflationary pressures that could result in the Federal Reserve potentially delaying future potential interest rate reductions.

Headline consumer prices increased by 3.0% in the twelve months to January, above expectations that the reading would match December’s pace of 2.9%. Month-on-month, the gauge unexpectedly accelerated to 0.5%, up from 0.4% in the prior month and faster than economists’ expectations of 0.3%.

Higher inflation may erode consumer purchasing power, potentially dampening demand for oil and its derivatives.

Fed Chair Jerome Powell had, on the first day of his two-day testimony on Capitol Hill, already pointed out that the U.S. economy was in a good place and the central bank was in no hurry to reduce interest rates.

Higher interest rates strengthen the dollar and increase borrowing costs, reducing global oil demand and making oil more expensive for foreign buyers.

US crude inventories surge, signals weak demand - API

U.S. crude inventories saw a massive surge last week, rising by just over 9 million barrels for the week ending Jan. 31, according to the latest data from the American Petroleum Institute. 

The sharp increase significantly outpaced economists’ forecasts of a 2.8 million barrel build and more than exceeded the previous week’s 5.025 million barrel rise.

The unexpected jump signals potential weakness in demand, as rising inventories typically indicate an oversupplied market.

Despite the crude build, gasoline stockpiles declined by 2.51 million barrels, suggesting steady consumption in the transportation sector. Distillate inventories, which include diesel and heating oil, also fell by 590,000 barrels.

Market participants now await the U.S. Energy Information Administration’s official inventory report, set for release later in the session, to confirm these trends.

Supply disruption fears, geopolitical tensions support prices

Crude oil prices experienced a notable uptick recently, driven by concerns over potential supply disruptions stemming from U.S. sanctions on Iran and Russia.

Trump recently reimposed sanctions on Iran, aiming to reduce its oil exports to zero. This heightened supply concerns and provided some support to oil prices.

Moreover, the shipping of Russian oil to China and India, the world’s major crude oil importers, has been significantly disrupted by U.S. sanctions.

The amount of Russian and Iranian oil held on ships has hit multi-month highs, leaving fewer tankers available to deliver cargoes and driving up crude costs, according to a report from Reuters.

Market participants also look out for any escalations in the Middle East tensions, amid doubts that the ceasefire in Gaza will hold.

(Ayushman Ojha contributed to this article.)