Oil Prices Increase Amid U.S. Supply Concerns

By Siyi Liu

SINGAPORE (Reuters) - Oil prices continued to climb for a second consecutive day on Thursday. This increase comes as fears about oil supply rise due to U.S. sanctions on Russia, a bigger-than-expected drop in oil stockpiles, and a positive outlook for global demand.

Brent crude futures increased by 25 cents, or 0.3%, reaching $82.28 per barrel as of 0446 GMT. The day before, prices saw a significant increase of 2.6%, hitting their highest point since July 26 of the previous year.

Meanwhile, U.S. West Texas Intermediate crude futures also saw an uptick of 28 cents, or 0.4%, bringing the price to $80.32 a barrel. This follows a rise of 3.3% on Wednesday, marking their highest level since July 19.

According to the Energy Information Administration (EIA), U.S. crude oil inventories fell last week to their lowest levels since April 2022. This drop was primarily driven by a rise in exports coupled with a decrease in imports. The EIA reported a draw of 2 million barrels, which was much larger than the 992,000-barrel decline that analysts had anticipated in a recent poll.

This decline in inventory heightens concerns about global supply after the U.S. enacted broader sanctions against Russian oil producers and tankers. As these sanctions take effect, Russia's main customers are searching for alternative suppliers, causing shipping rates to increase.

On Wednesday, the Biden administration introduced new sanctions targeting the Russian military and its related evasion schemes. These continued restrictions enhance a tightening outlook for global oil supplies.

In response, the Organization of the Petroleum Exporting Countries (OPEC) and its allies have been cautious about increasing oil output. For the past two years, they have been limiting their production. Rory Johnston, founder of Commodity Context, noted, "The producer group has faced repeated challenges over the past year, leading them to be cautious about adjusting their current production levels."

Additionally, the recent agreement between Israel and Hamas to pause hostilities in Gaza and exchange hostages for Palestinian prisoners has somewhat tempered oil price gains.

On the demand side, global oil consumption has increased by approximately 1.2 million barrels per day in the first two weeks of 2025 compared to the same timeframe last year, although this is slightly below predictions. Analysts from JPMorgan forecast that oil demand will rise by 1.4 million barrels per day in the coming weeks. This growth is prompted by increased travel in India due to a major festival and anticipated travel for Lunar New Year celebrations in China at the end of January.

Market interest is also building regarding potential interest rate cuts by the U.S. Federal Reserve before the year concludes, following recent data indicating a decrease in core U.S. inflation. Such cuts could positively influence economic activities and energy consumption.

oil, prices, supply