Oil prices surge on surprise US crude inventory drawdown
Energy sector rallies as stockpiles fall 2.3 million barrels, defying analyst expectations
West Texas Intermediate crude futures surged to a four-month high above $63 per barrel on Wednesday after government data showed an unexpected decline in US oil inventories, bolstering the energy sector amid broader market gains.
The Energy Information Administration reported that US crude stockpiles fell by 2.3 million barrels in the week ending January 23, reaching 423.8 million barrels. The drawdown sharply contrasted with analyst expectations for a 1.8 million barrel build, according to a Reuters survey cited by BNN Bloomberg. The surprise decline of 4.1 million barrels relative to forecasts marked the largest inventory draw in recent weeks.
Crude inventories at Cushing, Oklahoma—the key delivery point for US crude futures—decreased by 278,000 barrels, while overall stockpiles remain 3 percent below the five-year average, according to the EIA report. Net US crude imports dropped by 1.71 million barrels per day, contributing to the tighter supply conditions.
WTI futures rose approximately 1.7 percent to $63.43 per barrel, according to Trading Economics data, while Brent crude futures gained 1.4 percent to $68.49. The price action extended the oil market's recent rally, supported by a confluence of factors including a weaker US dollar and temporary production disruptions from an Arctic blast that affected US output.
The EIA report also showed mixed trends in refined products. Gasoline stocks increased by 200,000 barrels to 257.2 million, while distillate inventories rose by 300,000 barrels to 132.9 million barrels. Refinery utilization rates declined 2.4 percentage points to 90.9 percent as crude runs fell by 395,000 barrels per day, indicating reduced processing activity.
Despite the immediate bullish reaction, the longer-term outlook for crude prices remains uncertain. The US Energy Information Administration projects WTI to average $52 per barrel in 2026, significantly below current levels, amid expectations of a global supply glut and concerns about weakening demand from slowing manufacturing activity in the US and China, according to analyst commentary.
Geopolitical tensions, including renewed US threats against Iran, have added a risk premium to prices as investors monitor potential disruptions to Iranian oil supplies. The weaker US dollar, trading near multi-year lows, has also supported commodity prices by making dollar-denominated crude more attractive to foreign buyers.
The energy sector's performance on Wednesday reflected the broader rally in commodities, though technical analysts suggest the current surge may face headwinds in coming weeks if supply concerns ease and the global demand outlook weakens further. OPEC+ has maintained current production levels, choosing to hold incremental output as the market navigates a period traditionally associated with softer demand.