Crude oil settles lower, but ends 3-month losing streak amid geopolitical tensions

© Reuters.

Investing.com — Oil prices settled lower Wednesday, following an unexpected build in U.S. crude inventories, but snapped a three-month losing streak as a cocktail of geopolitical tensions kept global crude supply risks elevated.

By 14:30 ET (19.30 GMT), the U.S. crude futures settled 2.5% lower at $75.85 a barrel, though was up 5.9% on the month, while the Brent contract dropped 1.4% to $81.71 a barrel, though added 6.1% in January.

U.S. crude inventories spring upside surprise as output rebound

Inventories of U.S. crude unexpectedly rose by 1.23M barrels for the week ended Jan. 29, confounding expectations for a draw of 217,000 barrels, according to Wednesday data from the Energy Information Administration.

The surprise build in crude stockpiles followed a rebound in U.S. production following weather-related disruptions.

Crude oil production averaged 13.3 million barrels per da during the week ending Jan. 26, up by 700,000 barrels per day from the previous week, the EIA said.

Gasoline inventories, one of the products that crude is refined into, increased by roughly 1.16M barrels against expectations of a build of 1.48M barrels while distillate stockpiles unexpectedly fell by more than expected 2.5M barrels, compared to expectations for a draw of 425,000 barrels.

Chinese manufacturing activity disappoints

Manufacturing activity in China, the world’s second-largest economy, contracted for a fourth straight month in January, in the first official snapshot of how this crucial market–China is the biggest importer of oil in the world–has started the new year.

The official purchasing managers’ index rose to 49.2 in January from 49.0 in December, an improvement but still below the 50-mark that separates growth from contraction.

A quick return to above-trend economic growth in China was behind the bullish forecasts of oil demand growth for 2024 from both the International Energy Agency and the Organization of Petroleum Exporting Countries earlier this month.

The International Monetary Fund on Tuesday lifted China’s growth forecast this year to 4.6% from 4.2% in October, but there must still be doubt about this recovery given a property downturn, local government debt risks, deflationary pressures and weak global demand.

Elsewhere, the eurozone barely registered any growth in the fourth quarter, while Germany, the dominant economy in the region, looks set to record a technical recession in the first quarter of 2024.

U.S.’s Middle East response awaited

That said, losses are relatively minor and the market as a whole is on course to register a first monthly gain since September as flaring tensions in the Middle East heightened supply concerns.

The U.S. has vowed to take “all necessary actions” to defend its troops following a deadly drone attack in Jordan.

The Biden administration has accused Iran of backing the militants who committed the attack, and while Tehran has denied involvement, Iranian oil exports are potentially vulnerable via potentially greater enforcement of sanctions.

“The market is trading cautiously ahead of the potential U.S. response to the recent assault in Jordan and how Iran will react in turn,” analysts at ING said, in a note.

(Peter Nurse contributed to this story)

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