Oil falls to 7-week low on surprise build in US storage, Middle East ceasefire hopes

NEW YORK: Oil prices fell about 2% to a seven-week low on Wednesday on a surprise build in U.S. crude stocks, the prospect of a Middle East ceasefire agreement and persistent U.S. inflation dampening the expected pace of interest rate cuts and oil demand growth.

Brent futures fell $1.39, or 1.6%, to $84.94 a barrel by 10:40 a.m. EDT (1440 GMT), while U.S. West Texas Intermediate (WTI) crude fell $1.39, or 1.7%, to $80.54.

That put both benchmarks on track to close at their lowest levels since March 13 and also pushed both into technically oversold territory for the first time since December 2023.

Oil prices down on rising US supply

The U.S. Energy Information Administration (EIA) said energy firms added a surprise 7.3 million barrels of crude into stockpiles during the week ended April 26.

That compares with the 1.1 million barrel withdrawal analysts forecast in a Reuters poll and the 4.9 million barrel increase shown in data from the American Petroleum Institute (API), an industry group.

Expectations that a ceasefire agreement between Israel and Hamas could be in sight have grown following a renewed push led by Egypt, even as Israeli Prime Minister Benjamin Netanyahu has vowed to go ahead with a long-promised assault on Rafah.

“The crude market is weighed down by continued hopes for a ceasefire,” said Ole Hansen of Saxo Bank. “In addition, stubborn U.S. inflation has further reduced rate cut expectations.”

Officials at the U.S. Federal Reserve (Fed) are expected to leave the central bank’s benchmark overnight interest rate unchanged in the current 5.25%-5.50% range, where it has been since July 2023.

The Fed started hiking interest rates in March 2022 to fight soaring inflation. Financial markets have pushed back expectations of a rate cut this year to September from June.

Lower interest rates would reduce borrowing costs and could spur economic growth and demand for oil.

Adding to those expectation for a Fed delay in cutting rates was U.S. data showing private payrolls increased by more than expected in April.