Oil prices plunged over 3% on Wednesday, hitting a seven-week low, due to a combination of factors.
- Unexpected Stockpile Build: The main culprit was a surprise increase in U.S. crude oil stockpiles. Energy firms added a whopping 7.3 million barrels, far exceeding analysts’ expectations of a draw. This indicates weaker demand than anticipated.
- Middle East Ceasefire Prospects: Hopes for a ceasefire agreement between Israel and Hamas dimmed oil’s prospects. Renewed diplomatic efforts and a potential halt to fighting could ease supply concerns.
- US Inflation Dampens Rate Cut Hopes: Stubbornly high U.S. inflation data reduced expectations of an interest rate cut from the Federal Reserve. Lower rates typically boost economic activity and oil demand. The Fed is likely to maintain current rates, further dampening oil demand growth.
Also Read: Oil Prices Fall for Third Day as Worries About Demand Rise
The price drop sent Brent crude tumbling over $2.50 to $83.81 a barrel, while West Texas Intermediate (WTI) fell below $80 a barrel for the first time since mid-March. Both benchmarks are now considered technically oversold, a sign of potential short-term price weakness.
Other factors contributing to the decline include:
- A stronger U.S. dollar, making oil more expensive for countries using other currencies.
- Higher-than-expected U.S. private payrolls data, indicating continued economic strength and potentially less need for stimulus measures like rate cuts.
