Oil Prices Drop to Two-Month Low as U.S. Fuel Stockpiles Surge

Oil prices tumbled to their lowest levels in over two months on Wednesday, driven by a combination of weakening U.S. fuel demand and growing optimism around a potential peace agreement between Russia and Ukraine. Brent crude, the global benchmark, declined by 49 cents, or 0.67%, settling at $72.53 per barrel.

Meanwhile, U.S. West Texas Intermediate (WTI) crude oil futures dropped 31 cents, or 0.45%, closing at $68.62 per barrel. Both benchmarks marked their lowest settlements since December 10, reflecting a broader market unease about near-term demand and supply dynamics.

Surprise Surge in U.S. Fuel Inventories Sparks Sell-Off

The catalyst for the latest price drop came from unexpected data released by the Energy Information Administration (EIA). While U.S. crude oil inventories saw a significant drawdown last week, defying expectations, gasoline and distillate stockpiles posted surprise increases. This build in fuel inventories signaled softer demand in the world’s largest oil-consuming nation, overshadowing the positive crude draw.

Refining activity also edged higher, adding complexity to the market’s reaction. Bob Yawger, director of energy futures at Mizuho, described the sell-off as a “knee-jerk reaction” to the downside, noting that the substantial crude oil draw was overshadowed by the unexpected fuel stockpile data. “It was a bit of a surprise,” Yawger remarked, highlighting the market’s sensitivity to demand indicators.

Russia-Ukraine Peace Prospects Weigh on Sentiment

Beyond U.S. inventory figures, geopolitical developments played a significant role in pressuring oil prices. Analysts at ING noted improving prospects for a peace deal between Russia and Ukraine, a conflict that has disrupted global energy markets since its onset. The possibility of de-escalation has eased fears of supply disruptions, contributing to the bearish sentiment.

Adding to this narrative, reports emerged of a draft minerals deal between the U.S. and Ukraine, a move tied to President Donald Trump’s push to swiftly resolve the war. Sources familiar with the matter told Reuters that the agreement, finalized on Tuesday, could bolster Ukraine’s economic stability while aligning with broader U.S. strategic goals. The market is closely monitoring these developments for their potential impact on oil supply chains.

Trade War Fears Subside, But Sanctions and Policy Shifts Linger

Despite fresh U.S. sanctions targeting Iran’s oil exports, concerns about immediate supply tightness have taken a backseat. Analysts at ANZ Bank pointed out that fears of a trade war sparked by Trump’s tariff rhetoric have begun to dissipate, reducing the perceived risk to global oil demand. However, policy reversals in the U.S. continue to ripple through the market.

Trump recently announced the rollback of concessions granted to Venezuela by the Biden administration in 2022, a decision that could tighten Latin American oil supply over time. For now, though, the focus remains on demand-side pressures rather than supply constraints.

Market Outlook: Balancing Demand Weakness and Geopolitical Hope

Wednesday’s price declines underscore the delicate balance between demand signals and geopolitical optimism. The unexpected buildup in U.S. gasoline and distillate inventories has rattled traders, amplifying concerns about sluggish consumption as the global economy navigates uncertainty. At the same time, the prospect of peace in Eastern Europe and strategic minerals agreements offer a counterweight, potentially stabilizing long-term supply expectations. As Brent and WTI settle at their lowest points in nearly three months, investors are left weighing these competing forces, with the next EIA report and updates on Russia-Ukraine talks likely to shape the market’s trajectory in the days ahead.

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