Investing.com-- In the early hours of Asian trade on Thursday, oil prices stabilized after a smaller than expected draw in U.S. inventories raised concerns about cooling demand. However, the potential for extended supply disruptions in Libya helped limit losses.
Crude markets have experienced two consecutive days of losses, reversing a recent rebound due to ongoing worries about slowing growth in the U.S. and China impacting demand in the near future.
Production disruptions in Libya have led traders to add a risk premium to crude oil, along with signs of sustained conflict in the Middle East. The price of oil expiring in October fell slightly to $78.62 a barrel, while Brent crude steadied at $74.57 a barrel by 20:54 ET (00:54 GMT).
US Inventories Fall Below Expectations Amid Cooling Summer Demand
The Energy Information Administration reported a smaller than expected draw of 0.85 million barrels in U.S. inventories for the week ending August 23. While gasoline inventories saw a larger than expected draw, distillate inventories unexpectedly built up.
The mixed inventory reports have heightened concerns that U.S. oil demand may decrease as the summer season, known for increased travel, comes to an end. Worries about a slowing U.S. economy affecting demand have also lingered, following recent weak readings on the labor market.
All eyes are now on the upcoming second-quarter U.S. GDP data, set to be released later on Thursday, for further insights into the world's largest economy. Additionally, the Core PCE Price Index, the Federal Reserve's preferred inflation gauge, is scheduled for release on Friday amidst growing optimism about potential interest rate cuts.
Libya Supply Risks Keep Crude Oil Losses in Check
Despite concerns about cooling demand, larger losses in oil prices have been prevented by the presence of risk premium factors. Libya recently halted production at most of its major oilfields due to a dispute over the country's central bank.
The Central Bank of Libya, the recognized depository for oil export payments, is controlled by the internationally recognized government in the western part of the country. However, the eastern side, which holds the majority of the country's oilfields and is governed by a separate leadership, has called for a change in the central bank's leadership and subsequently shut down oil production.
In July, Libya produced approximately 1.2 million barrels per day, and any prolonged production shutdowns could lead to a global oil supply shortage.
Analysis and Breakdown:
In summary, oil prices have stabilized in Asian trade due to concerns over cooling demand in the U.S. and China, as well as supply disruptions in Libya. The smaller than expected draw in U.S. inventories has raised worries about decreasing oil demand as the summer season concludes. Furthermore, the ongoing conflict in the Middle East and the risk premium attached to crude oil have helped limit losses. Investors should closely monitor upcoming economic data releases and geopolitical developments to gauge the future direction of oil prices and potential impacts on their investments.