Oil prices extended their gains on Thursday, driven by stronger-than-expected fuel demand in the U.S. and a weaker dollar. Brent crude futures rose 0.5% to $71.12 per barrel, while WTI crude climbed 0.6% to $67.58.
A key factor behind the rally was a larger-than-expected drawdown in U.S. distillate inventories, which fell by 2.8 million barrels last week. Analysts had only anticipated a 300,000-barrel decline, according to a Reuters poll. This sharp reduction, particularly in diesel and heating oil, signals strong industrial and transportation demand despite a slowdown in air travel.
- Global oil demand is estimated at 101.8 million barrels per day (bpd), up 1.5 million bpd annually.
- U.S. crude inventories rose 1.7 million barrels, exceeding forecasts of 512,000 barrels.
According to JPMorgan analysts, the U.S. oil demand outlook remains resilient, even as air travel activity remains below pre-pandemic levels.
Weaker Dollar Supports Crude Prices
The U.S. dollar’s decline has also contributed to rising oil prices. The dollar index (DXY) has been on a downward trend since late February, making oil cheaper for foreign buyers and boosting global demand.
Factors contributing to the dollar’s weakness include:
- Expectations that the Federal Reserve may cut interest rates by 50 basis points by year’s end.
- Lower U.S. Treasury yields, reducing demand for dollar-based assets.
- Rising commodity investment amid inflation concerns.
“Throughout the week, dollar weakness has supported oil prices,” said Phillip Nova senior market analyst Priyanka Sachdeva. Investors remain optimistic that monetary easing will stimulate economic activity, further bolstering demand for crude.
Geopolitical Tensions and Supply Risks
Escalating conflicts in the Middle East and production shifts within OPEC+ have also influenced oil markets.
- Israel launched a fresh ground operation in Gaza, disrupting regional stability.
- U.S. airstrikes targeted Houthi positions in Yemen, following attacks on Red Sea shipping routes.
- Saudi Arabia and OPEC+ are set to increase output, potentially balancing supply-side pressures.
Kelvin Wong, a senior analyst at OANDA, noted that while oil prices may continue their upward drift, short-term fluctuations are likely as markets react to geopolitical and economic developments.
With demand strengthening and the dollar remaining weak, analysts predict further price gains, though near-term volatility remains a key risk factor.