Oil Prices Surge Despite U.S. Storm Fears As Inventories Decline

Oil prices inched higher on Wednesday as data indicated a larger-than-anticipated weekly drawdown in U.S. stocks, but concerns over unfavorable weather conditions impacted on the near-term demand picture.

The American Petroleum Institute reported that U.S. stockpiles increased by 3 million barrels more than anticipated for the week of December 16th, foreshadowing a similar trend in official statistics likely to show an increase of over 2 million barrels in inventories later in the day. The supply difficulties caused by the temporary blockage of the Keystone pipeline have contributed to the decline in inventory.

Brent oil futures traded in London increased 0.4% to $80.10 per barrel, extending advances to a third consecutive session, while West Texas Intermediate crude futures rose 0.1% to $76.32 per barrel as of 20:43 ET (01:43 GMT).

This week, crude oil prices gained from a weaker currency, particularly after the Bank of Japan modified its ultra-dovish stance for the first time in nearly a decade. This action strengthened the yen and pushed the dollar close to a six-month low, which is advantageous for commodities priced in dollars.

The U.S. government's pledge to begin restocking its Strategic Petroleum Reserve in February also boosted prices and gave a buy signal to markets.

On the other hand, a worsening forecast for a storm in the midwestern United States indicated the possibility of travel difficulties over the Christmas season at the end of the year, which might further reduce demand for fuel. With the imminent reopening of the Keystone pipeline, U.S. supplies are expected to grow as well.

Increasing gasoline inventories indicated that fuel demand in the world's largest oil user remained weak.

Even if oil prices have risen in recent sessions, they are still down significantly for the year as rising interest rates and soaring inflation have fueled fears of a possible recession in 2023.

Even while the BOJ's policy move weakened the dollar, it suggests that the vast majority of major central banks in developed markets are preparing to tighten policy in 2023, which might further depress crude demand.

Last week, crude markets were shaken by hawkish signals from the Federal Reserve, the European Central Bank, and the Bank of England. The uncertainty surrounding China's economic revival, as the country deals with an increase in COVID-19 cases, is also anticipated to impact on crude prices in the near future.