Oil Prices Surge Despite Modest Increase in US Crude Supplies

In a surprising turn of events, oil prices witnessed a notable surge, defying expectations as U.S. crude supplies experienced a smaller-than-anticipated rise. This development sparks optimism for a potential tightening of global supplies, amidst persistent disruptions due to conflicts in the Middle East.

Positive Momentum in U.S. Crude Futures

By 14:30 ET (19:30 GMT), U.S. crude futures exhibited a commendable increase of 0.9%, settling at $78.61 per barrel. Simultaneously, the Brent contract demonstrated a rise of 0.8%, reaching $83.67 per barrel.

Inventory Surprises Challenge Estimates

Contrary to predictions, U.S. crude inventories recorded a modest uptick of approximately 3.5 million barrels for the week ending Feb. 16. This figure fell short of the estimated 3.9 million barrels build-up, diverging sharply from the American Petroleum Institute's report a day earlier, which indicated a growth of 7.2 million barrels.

The unexpectedly lower build-up coincides with sustained near-record levels of domestic crude oil production at 13.3 million barrels per day. Concurrently, refinery utilization remained stagnant at 80.6%, nearing the lowest level in two years due to weather-related disruptions.

Dynamics in Gasoline and Distillate Inventories

Gasoline inventories, a primary product derived from crude refining, saw a decline of about 294,000 barrels, contrary to the expected draw of 2.1 million barrels. Additionally, distillate stockpiles experienced a reduction of 4 million barrels, surpassing expectations for a draw of 1.7 million barrels.

Federal Reserve's Impact on Demand Outlook

Concerns about sluggish demand persisted among traders, exacerbated by revelations from the Federal Reserve's late-January meeting. The minutes indicated that the central bank displayed no urgency in initiating interest rate cuts. This sentiment was echoed by various Fed officials throughout the week, citing apprehensions about persistent inflation. The fear is that higher rates could impede economic activity, subsequently affecting oil demand.

Escalating Middle East Tensions and their Impact

Tensions in the Middle East escalated as Houthi rebels pledged intensified attacks on ships in the Red Sea, expressing solidarity with the Palestinian cause amid the ongoing Gaza war. Houthi leader Abdulmalik al-Houthi disclosed the use of "submarine weapons" in their attacks, emphasizing their continuous escalation.

Despite this, hopes for a ceasefire in the Israel-Gaza conflict received a boost with Hamas chief Ismail Haniyeh's arrival in Cairo for talks. However, Israel's rejection of Hamas' proposed ceasefire deal, including calls for the withdrawal of Israeli troops from Gaza, has been met with strong opposition from Prime Minister Benjamin Netanyahu, who labeled the demands as "delusional."