Oil prices fell on Wednesday after struggling to break past a key technical level, despite signs of tightening US crude supplies.

West Texas Intermediate (WTI) crude for February delivery dropped 1.25%, settling at US$73.32 per barrel, below its intraday high of nearly US$75.48. Brent crude for March delivery fell 89 cents, closing at US$76.16 per barrel.

The rally was capped at the 200-day moving average, which has acted as a resistance level for prices since October 2024. Analysts noted that failure to breach this ceiling prompted a decline, leaving prices nearly US$2 lower than the day's peak.

Despite the slump, market fundamentals suggest tighter conditions. US crude inventories declined for the seventh consecutive week, falling by 959,000 barrels, marking the longest streak of drawdowns in three years. Additionally, severe winter weather in the US has driven higher demand for heating fuels and raised concerns over production freeze-offs.

According to JPMorgan Chase & Co, early January indicators show robust oil demand, driven by increased heating fuel usage in the Northern Hemisphere. The bank forecasts global oil demand averaging 101.4 million barrels per day this month, a 1.4 million-barrel increase from the same period last year.

Supply-side pressures also persist. Russia's December oil production fell below its OPEC+ output target, with seaborne exports hitting their lowest levels since August 2023. In China, authorities in Shandong province, the primary destination for Iranian crude, have urged ports to comply with US sanctions by preventing sanctioned tankers from docking.

While oil has had a strong start to 2025, analysts warn of potential oversupply later in the year. The market is also eyeing policy shifts as Donald Trump's second term approaches, with possible tougher sanctions on Iran and additional tariffs on China.

Prices:

WTI (February delivery): US$73.32 per barrel (-93 cents)

Brent (March delivery): US$76.16 per barrel (-89 cents)

Bloomberg