Crude prices inched upward on Wednesday, supported by a sharper-than-expected drop in U.S. oil inventories and investor anticipation of a possible Federal Reserve rate cut, as well as ongoing updates surrounding peace discussions over Ukraine.
As of 07:45 ET (12:45 GMT), February Brent futures were up 0.5% at $62.25 a barrel, while West Texas Intermediate (WTI) crude gained 0.6% to $58.60 a barrel.
Despite the modest rebound, both benchmarks remain nearly 3% lower over the last two sessions amid persistent worries about global oversupply.
U.S. stockpile decline boosts sentiment
Fresh data from the American Petroleum Institute late Tuesday revealed that commercial crude inventories dropped by 4.8 million barrels in the week ending Dec. 5 — a significantly larger drawdown than the roughly 1.7 million barrels analysts had projected.
This follows a 2.48-million-barrel decrease recorded the previous week.
The larger-than-expected draw points toward firmer demand or tighter supply conditions, giving oil prices a short-term lift.
Rate-cut expectations from the Fed underpin demand outlook
The Federal Reserve’s two-day meeting, which began Tuesday, is widely anticipated to end with a quarter-percentage-point reduction in interest rates. Lower borrowing costs would typically weaken the U.S. dollar and stimulate economic activity, both of which tend to support oil consumption.
Ukraine peace negotiations remain a key variable
At the same time, markets are monitoring renewed diplomatic efforts to advance peace negotiations over the war in Ukraine. Reports suggest Kyiv is preparing to present an updated peace proposal to U.S. and European officials following high-level talks in London.
A diplomatic breakthrough could potentially increase Russia’s ability to export oil, creating additional downside pressure for crude. On the other hand, stalled talks could elevate geopolitical risk — usually supportive for prices.
Analysts at ING noted: “Russian oil supply remains a risk. While Russian seaborne export volumes are holding up well, these barrels are struggling to find buyers. So, we are seeing increasing volumes of Russian oil at sea. Obviously, this is not sustainable. We need to see steeper discounts on Urals to attract buyers and/or Russian buyers, ensuring they are not dealing with sanctioned entities. If these fail, we will likely have to see Russian oil output starting to fall.”
ING added: “Our base case remains that Russia will find ways to work around the latest U.S. sanctions. Russia has demonstrated an ability to keep oil flowing since 2022 despite sanctions, embargoes and drone attacks.”
EIA expects U.S. output to reach record levels in 2025
In its latest Short-Term Energy Outlook, the U.S. Energy Information Administration revised its 2025 crude production forecast higher, predicting output will climb to a record 13.61 million barrels per day — an upgrade from prior estimates.
The Permian Basin is expected to remain the dominant source of U.S. production gains, thanks to continued operational efficiency and strong drilling momentum.
Output is projected to ease slightly to 13.53 million barrels per day in 2026 but remain near historic highs.
The EIA attributed the upward revision to the surprising resilience of U.S. shale producers, who have maintained strong performance despite lower prices earlier in the year and reduced rig counts. Consolidation among major players and improved well productivity have also supported production strength.