Oil Prices Settle Higher

Oil prices settled higher on Wednesday, rebounding from recent declines as traders assessed a larger-than-expected drop in U.S. crude inventories against a weaker global demand outlook.

At 14:30 ET (18:30 GMT), Brent oil futures increased by 0.9% to $81.71, supported by data from the Energy Information Administration indicating a 3.7 million barrels drop in U.S. oil inventories for the week ending July 19, surpassing expectations of a 2.6 million barrels draw.

Gasoline inventories saw a significant decline of 5.6 million barrels, while distillate stocks, which include diesel and heating oil, decreased by 2.8 million barrels. This was in contrast to expectations of a 400,000 barrels draw and a build of 250,000 barrels respectively.

The larger withdrawals in petroleum products occurred as refinery activity slipped to 91.6% capacity, down from 93.7% the previous week.

Canadian Wildfires Threaten Supply

Additionally, Canadian wildfires have been contributing to the market’s dynamics, leading some producers to reduce output and posing a significant threat to supply. Bloomberg reports that 388,000 barrels per day of oil production is currently within 10 kilometers of fires larger than 10 hectares.

Oil Outlook Dour Amid Supply Glut Fears

Oil prices have faced considerable losses in previous sessions due to a deteriorating crude outlook, particularly concerning a projected surplus by 2025. Worries surrounding top importer China and discussions about a potential ceasefire between Israel and Hamas have further impacted crude markets.

However, it is expected that oil market tightness will ease in the coming months, with Morgan Stanley predicting an oil surplus by early 2025. The investment bank forecasts crude prices to settle in the high $70s by next year.

Increased global oil production combined with subdued demand in key importer China is anticipated to ensure adequate supply in the near future. China’s economic recovery remains uncertain, with recent data showing growth below expectations for the second quarter and a sharp decline in oil imports in June.

The Third Plenary Meeting of the Chinese Communist Party yielded few insights regarding potential additional stimulus from Beijing. Moreover, sentiment towards China is cautious amid uncertainties regarding the implications of a potential change in U.S. administration on Washington’s relationship with Beijing.

*(Peter Nurse, Ambar Warrick contributed to this article.)