WionDrive News Desk 
Oil prices surged approximately 2% on Wednesday, driven by a larger-than-anticipated decline in U.S. crude inventories and a weakening U.S. dollar. This upward trend managed to overshadow growing concerns about China’s decelerating economic growth.
By 1:33 p.m. EDT (1733 GMT), Brent futures had risen USD 1.35, or 1.6%, to USD 85.08 a barrel, while U.S. West Texas Intermediate (WTI) crude increased by USD 2.09, or 2.6%, settling at UD 82.85. This uptick comes after both benchmarks closed at their lowest levels since mid-June on the previous day.
The U.S. Energy Information Administration reported that energy firms withdrew 4.9 million barrels of crude from storage during the week ended July 12. This substantial drawdown significantly surpassed analysts’ expectations of a 30,000-barrel decline, as forecasted in a Reuters poll, and even exceeded the 4.4 million barrel drop reported by the American Petroleum Institute.
Adding to the bullish sentiment, the U.S. dollar hit a 17-week low against a basket of major currencies. A weaker dollar typically boosts oil demand by making dollar-denominated commodities more affordable for holders of other currencies.
However, the oil market’s gains were tempered by signs of economic slowdown in China, the world’s largest oil importer. Official data revealed that China’s economy grew by 4.7% in the second quarter, marking the slowest growth rate since the first quarter of 2023. This deceleration in the Chinese economy has capped potential further increases in crude prices.
The narrowing spread between Brent and WTI prices, which reached around USD 3.65 per barrel (the lowest since October 2023), is also noteworthy. This tightening spread reduces the economic incentive for energy firms to transport crude from the U.S. for export.
In the U.S. refining sector, both the diesel and 321-crack spreads, which serve as indicators of refining profit margins, fell to their lowest levels since late 2021 and early 2024, respectively. This development suggests potential challenges for refiners in the near term.
Analysts at Citigroup’s Citi Research unit highlighted in a recent report that recent data signals a slowdown in growth not just in China, but also in the United States and the euro area. They further suggested that central banks are approaching a point where they may have the scope to implement substantial interest rate cuts.
This observation aligns with statements from top U.S. Federal Reserve officials on Wednesday, indicating that the central bank is “closer” to cutting interest rates. This stance is based on improved inflation trajectories and a more balanced labor market, setting the stage for a potential first reduction in borrowing costs by September.
The Fed’s aggressive rate hikes in 2022 and 2023, aimed at curbing inflation, led to increased borrowing costs for consumers and businesses, subsequently slowing economic growth and reducing oil demand. A reversal of this trend through lower interest rates could potentially stimulate oil demand.
