In the latter part of Wednesday's trading session, crude oil futures faced a notable decline following the publication of the Energy Information Administration (EIA) report. The report disclosed an unexpected surge in US crude stocks and a substantial increase in product inventories, effectively wiping out the earlier gains observed in the market.

The most considerable impact on pricing arose from a substantial build in product inventories. Specifically, US gasoline stocks saw a noteworthy expansion of 8 million barrels in the first week of January, building upon the preceding week's historic 30-year high increase of 11 million barrels. Furthermore, distillate fuel stocks attained nearly a 2.5-year high at the commencement of 2024, primarily due to a decline in exports.

Before the release of the EIA data, market benchmarks had been following an upward trajectory, with a particular focus on developments in the Middle East. Initially, the market seemed to overlook Libya's declaration of force majeure following protests targeting the El Sharara field. However, by Wednesday, concerns began to mount regarding potential escalation in protests, posing a threat to other oil fields, including production from El-Feel.

Tensions in the Middle East continued to intensify, notably with Houthi attacks on Red Sea shipping displaying no signs of subsiding. In a significant development late on Tuesday, US and UK naval forces successfully thwarted the largest attack to date by the Yemeni-based militant group, downing over 20 drones.

Despite these geopolitical concerns, the market found itself in a state of conflict, grappling with apprehensions surrounding sluggish economic growth in 2024, ample crude supplies, increased inventories, and decelerated demand growth for oil, collectively reinforcing a bearish sentiment.

On the optimistic side, proponents of a bullish outlook contended that any surplus in supply would be short-lived, primarily due to the steadfast discipline maintained by OPEC+. Additionally, ongoing political uncertainty in the Middle East gave rise to concerns about potential broader impacts on the energy sector, extending beyond mere shipping delays in the Red Sea.

The bearish perspective was accentuated by a substantial price drop on the preceding Monday, triggered by Saudi Arabia's decision to reduce Official Selling Prices (OSPs). Despite expectations for such reductions following the lacklustre performance of Middle East crude grades at the end of the previous year, the impact was significant. Beyond the obvious impact on prices and reduced premiums over benchmarks, the subsequent decline in oil prices was underscored. Furthermore, the bank highlighted Saudi Arabia's voluntary production cuts over the past six months and anticipated a close monitoring of OPEC+ members to ensure adherence to agreed production cuts.