Investing.com– Oil prices rose in Asian trade on Thursday after hitting multi-month peaks in the previous session, driven by a combination of softer U.S. inflation data, new sanctions on Russian oil, and significant drawdowns in U.S. crude inventories.
At 20:28 ET (01:28 GMT), Brent Oil Futures were 0.4% higher at $82.35 a barrel, and Crude Oil WTI Futures expiring in March rose 0.4% to $79.01 a barrel.
Oil prices rose more than 2% on Wednesday as a benign US inflation report brought back rate cut expectations into play. The prospect of lower interest rates typically supports economic growth, potentially boosting oil demand.
U.S. inflation data and its impact on oil prices
U.S. Consumer Price Index (CPI) for December rose by 0.4%, largely in line with economists’ expectations, while an underlying measure was slower than anticipated.
The soft inflation data spurred a rally in oil prices, as it raised expectations of a less aggressive Federal Reserve stance, potentially weakening the U.S. dollar and boosting demand for commodities like crude oil.
The data alleviated some concerns about the Federal Reserve’s hawkish outlook, where it has projected just two rate cuts in 2025.
When interest rates are lower, borrowing becomes cheaper, encouraging both businesses and consumers to spend more. This increased economic activity can drive higher demand for oil, as industries and transportation sectors require more energy.
Additionally, lower rates often lead to a weaker U.S. dollar, which makes oil, priced in dollars, more affordable for foreign buyers. As a result, the combination of stronger demand and a weaker dollar typically leads to rising oil prices.
The US Dollar Index fell 0.1% on Thursday, retreating further from its two-year peak.
U.S. sanctions on Russian oil could disrupt supply – IEA
In a strategic move, the U.S. has imposed new sanctions targeting Russian oil exports. The International Energy Agency (IEA) noted that these sanctions could disrupt Russia’s oil supply chains, potentially tightening the global oil market.
The sanctions focus on entities responsible for over a third of Russian and Iranian crude exports in 2024, aiming to limit their ability to transport and sell oil. This development has raised concerns about potential supply shortages, contributing to the upward pressure on oil prices.
“While it is too early to fully quantify the potential impact from these new measures, some operators have reportedly already started to pull back from Iranian and Russian oil,” the Paris-based agency said.
U.S. crude inventories decline – EIA report
Supporting the bullish sentiment, the U.S. Energy Information Administration (EIA) reported a significant drawdown in crude oil inventories. This reduction indicates a tightening supply, further bolstering oil prices.
Crude inventories fell by 2 million barrels in the week ending Jan. 10, compared with a forecast of 992,000-barrel draw.
Gasoline and distillate inventories rose more than expected for the week.
This post is originally published on INVESTING.
