Crude oil prices reversed course, falling more than 1% due to the dual impact of a strong USD and an increase in fuel reserves in the US. However, scarce supply from Russia and OPEC continued to support prices, preventing them from falling further.
Oil prices reverse to fall - Pressure from a strong USD and rising reserves
On January 9, 2025, crude oil prices saw a significant decline. Brent crude fell 1.16%, closing at $76.23 per barrel, while US WTI crude dropped 1.25%, to $73.32 per barrel. Earlier in the session, both oil types had risen more than 1%.
The decline was primarily driven by a stronger US dollar.
As the US dollar rises, oil becomes more expensive for buyers using other currencies, exacerbated by a larger-than-expected increase in US fuel inventories.
Are US fuel inventories surging, signaling an oversupply?
The latest data from the US Energy Information Administration (EIA) showed a significant increase in fuel inventories:
Gasoline inventories rose by 6.3 million barrels to 237.7 million barrels, far exceeding analysts' expectations of a 1.5 million barrel increase.
Distillate inventories rose by 6.1 million barrels to 128.9 million barrels, compared to expectations for a 600,000 barrel increase.
In contrast, crude inventories fell by 959,000 barrels to 414.6 million barrels, less than the expected decrease of 1.84 million barrels.
The sharp rise in refined fuel products indicates weaker-than-expected demand, while the drawdown in crude oil inventories was driven by strong refining activity in the US.
Despite pressure from a strong USD and rising fuel inventories, the oil market received support from tight supplies:
OPEC production cuts: The group’s crude oil production fell in December 2024, mainly due to maintenance at oil fields in the UAE. This was partially offset by increased output from Nigeria and other members.
Russia missed its production target: Russia’s average crude oil production in December was 8.971 million barrels per day, below its target.
These factors helped limit the decline in prices, despite the downward pressure from the US market.
Oil Market Challenges Remain
Analysts predict that average oil prices this year will be lower than in 2024. The primary reason for this is the increase in production from non-OPEC countries, especially the US. However, the recovery of the global economy, along with supply adjustments from OPEC+, may continue to be key factors influencing the direction of oil prices in the near future.
Scarce supply from Russia and OPEC remains supportive for the market
Oil prices are under pressure from opposing factors, including the strength of the USD and high fuel reserves in the US. Investors need to closely monitor signals from both supply and demand to make informed decisions.
