Oil prices traded around their lowest level in six weeks on Wednesday, as the northern hemisphere gets deeper into summer with limited signs of the expected fuel consumption surge the period usually sees. The summer leap in consumption is simply not taking place, leading to diminishing hopes of demand resurrection.

On Wednesday, oil prices saw only a slight reprieve, snapping three straight sessions of decline. This was driven by falling US crude inventories and growing supply risks from wildfires in Canada, which have boosted prices. Brent crude futures for September rose 66 cents, or 0.8 percent, to $81.67 a barrel by 11:08 a.m. Saudi time. US West Texas Intermediate crude for September increased 65 cents, or 0.8 percent, to $77.61 per barrel.

The American Petroleum Institute (API) has reported that US crude oil stocks fell by 3.9 million barrels for the week ended July 19, marking the fourth consecutive week of inventory declines. Crude oil prices were trading down ahead of the API data release, reflecting the market's concern over the economic slowdown in China, the world's biggest crude importer, and its impact on global oil demand. Wildfires in Canada also added to the complications, as some producers have curtailed production, threatening a significant supply disruption.

US crude oil inventories, gasoline, and distillate inventories have all fallen more than expected, according to reports from the Energy Information Administration (EIA). Crude inventories fell by 3.7 million barrels to 436.5 million barrels during the week ending July 19. This decline was significantly sharper than analysts' expectations of a 1.6 million-barrel draw. Similarly, gasoline stocks fell by 5.6 million barrels to 227.4 million barrels, far exceeding the predicted 400,000 barrels. Distillate inventories, which include diesel and heating oil, also saw a drop of 2.8 million barrels in the same period.

The API figures revealed that US crude, gasoline, and distillate inventories each fell for the fourth straight week, reflecting steady demand in the world's largest oil consumer. The crude oil inventories also noted an increase in storage at the Strategic Petroleum Reserve (SPR), which rose by 0.7 million barrels as of July 19. However, these are still well below the highs of 656 million barrels noted in June 2020.

Additional data showed a 1.7 million barrels fall in crude stocks at the Cushing, Oklahoma, delivery hub. Moreover, refinery crude runs decreased by 521,000 barrels per day, subsequently leading refinery utilization rates to drop by 2.1 percentage points over the week. Net US crude imports were also down by 388,000 barrels per day.

Oil market analysts have highlighted that while prices are nearing oversold territory, the fundamentals seem to support prices moving higher from current levels over the remainder of the third quarter. Market optimism is driven, in part, by the continued fall in crude, gasoline, and distillate inventories. Moreover, persistent wildfires in Canada pose a continuing risk to supply, showing potential to push prices up.

Despite these factors, the broader picture for oil demand remains ambiguous due to geopolitical developments and economic conditions in major consumer markets. For instance, renewed hopes around Gaza cease-fire negotiations have been perceived as a factor that might de-escalate Middle East tensions, further influencing oil prices. Simultaneously, gasoline demand in the US for the summer has largely disappointed, casting doubts over the anticipated surge in fuel consumption that typically supports prices during this period.

With official government data on oil inventory data due for release, all eyes are on whether these trends will continue. The industry's collective response might determine the immediate future trajectory of oil prices, balancing between supply disruptions and economic demand indicators.

In summary, the current oil market context is defined by declining inventories across various categories, reinforced by concerns over supply risks due to Canadian wildfires and subdued economic conditions in key global markets. As wildfires specifically pose an ongoing threat to oil production, analysts expect a tight market through the remainder of the third quarter.