Oil prices saw a resurgence on Wednesday, despite a notable surge in US weekly inventories. West Texas Intermediate (WTI) settled up 1.1 percent at $74.07, rebounding from four-month lows of $72.82. This uptick comes amidst a week where oil prices have witnessed a 3.5 percent decline, erasing 12 percent of their value since the beginning of the second quarter, thereby nullifying a significant portion of the gains made in the first quarter.
The industrial demand, marred by an economic slowdown over the past two months, coupled with the de-escalation of geopolitical tensions in the Middle East, had already begun to impact bullish sentiments. WTI retreated from its highs of $86 per barrel to hover just below $80 ahead of the OPEC meeting scheduled for June 2. Additionally, crude oil prices faced a setback following OPEC+’s unexpected decision to gradually phase out additional voluntary supply cuts of 2.2 million barrels per day (mb/d) starting October.
It appears that cartel members are increasingly inclined towards regaining market share, evident in Saudi Arabia’s decision to discount the official selling price to Asian buyers for the first time in five months, reflecting the broader economic slowdown.
The Energy Information Administration’s (EIA) weekly crude inventory report revealed a notable increase of 1.2 million barrels in US commercial reserves. Gasoline stockpiles surged by 2.2 million barrels, while distillate fuel rose by 3.2 million barrels. While this report reflects a visibly bearish trend as inventories surged across the product line, it’s important to note that refiners are currently operating at 95.4 percent of operable capacities, anticipating summer demand and the impending hurricane season, which could potentially disrupt production in the future. However, the gasoline demand during the Memorial Day holiday in the US disappointed at 8.9 million barrels per day (mbpd), signaling a weak start to the summer season.
Recent economic data from the US further paints a bleak picture, with cracks appearing in the labor market as job openings slowed to 8.059 million in April, marking its lowest since February 2021. Additionally, May hiring according to ADP stood at 152,000, the weakest in four months. Construction spending has slowed in the past two months, and ISM factory activities in May remained in contraction for the second consecutive month, with only seven of the eighteen major manufacturing industries reporting growth in May. Consequently, a slowdown in consumer spending is anticipated in the coming months.
Outlook:
Analysts believe that the scale of the sell-off at the front end of the forward curve has been exaggerated. The economic slowdown has largely been factored into the markets, and limited downside in oil prices is expected. However, the decision from OPEC+ suggests relatively more weakness further along the forward curve.
Speculative investments are likely to be concentrated in nearby prompts. Technical charts also indicate that the oil market is entering oversold territory, contributing to the rebound witnessed on Wednesday. In the short term, prices are expected to remain under pressure, with WTI crude oil potentially testing support around $72, followed by $70.
Related topics:
WTI Oil Prices Plummet To Four-month Low Amid Us Surging Supply
WTI Oil Prices Drop Amid Opec+ Decision On Production Cuts
WTI Crude Oil Softens Despite Opec+ Extending Production Cuts
