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Prices fell more than 3% to a seven-week low on Wednesday after
the U.S. Federal Reserve kept interest rates steady and warned
of stubborn inflation, which could curtail economic growth this
year and limit oil demand increases.
Crude was also pressured by an unexpected increase in U.S. crude
inventories in data from the Energy Information Administration (EIA).
Inventories were shown at their highest since June. [EIA/S].
"The updated inventory statistics were probably the most salient
price driver over the course of yesterday’s trading session,"
said PVM analyst Tamas Varga.
Crude inventories rose by 7.3 million barrels to 460.9 million
barrels in the week ended April 26, compared with the 1.1
million barrel draw expected by analysts in a Reuters poll.
Supporting the price recovery were ceasefire talks in the
Israel-Hamas war and the potential for low prices to spur U.S.
government buying for strategic reserves.
"As the impact of the U.S. crude stock build and the Fed
signaling higher-for-longer rates is close to being fully baked
in, attention will turn towards the outcome of the Gaza talks,"
said Vandana Hari, founder of Vanda Insights.
In the Middle East, expectations grew that a ceasefire agreement
between Israel and Hamas could be in sight after a renewed push
led by Egypt, though Israeli Prime Minister Benjamin Netanyahu
has vowed to go ahead with a long-promised assault on the
southern Gaza city of Rafah.
"The geopolitical temperature might have dropped a notch or two,
but the climate remains hot," Varga added.
The U.S. has previously said it aims to replenish the Strategic
Petroleum Reserve (SPR) after a historic sale from the emergency
stockpile in 2022 and wants to buy back oil at $79 a barrel or
less.
"The oil market was supported by speculation that if WTI falls
below $79, the U.S. will move to build up its strategic
reserves," said Hiroyuki Kikukawa, president of NS Trading,
owned by Nissan Securities.
(Reporting by Robert Harvey in London, Mohi Narayan in New Delhi
and Yuka Obayashi in TokyoEditing by David Goodman)
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