Oil futures experienced an increase on Thursday, as traders considered the support from a continuous weekly decline in US crude inventories versus the pressure from concerns about the outlook for energy demand. The Energy Information Administration (EIA) recently reported a weekly decline of 5.1 million barrels. However, Michael Hewson, chief market analyst at CMC Markets UK, stated that “there’s been little evidence thus far that the demand outlook is set to improve.” As a result, June West Texas Intermediate (WTI) crude edged up by 46 cents or 0.6% to settle at $74.76 a barrel on the New York Mercantile Exchange, following a 3.6% loss incurred after Wednesday’s settlement.
The recent decline in US crude inventories has led to a slight boost in oil prices, which in turn raised hopes among market participants. However, the ongoing uncertainty surrounding the energy demand outlook has significantly dampened these expectations. Concerns over the global economic recovery and the potential impact of new coronavirus strains on the reopening of economies have further fueled these sentiments. Consequently, WTI crude prices have remained under pressure despite the recent decrease in US crude inventories.
In contrast, Brent crude – the international benchmark for oil prices – has been relatively more successful in maintaining its gains. Factors such as the reopening of European countries and the vaccination drive in the United States have contributed to a positive demand outlook for Brent. Moreover, Brent has also managed to hold its ground amid the pressure from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, as they steadily restore the oil production cuts made last year.
However, the EIA’s weekly report, which showed a decline of 5.1 million barrels in crude oil inventories, indicates that there might be some improvement in the US oil market. The report also highlighted a drop in gasoline inventories, which declined by 2.1 million barrels. This suggests that the increase in gasoline demand – likely fueled by the gradual reopening of the economy and the relaxation of restrictions – might have helped the curb the increase in crude inventories.
In addition to the inventory data, market participants are also evaluating other factors affecting the oil market, such as the geopolitical tension in the Middle East. The ongoing conflict between Israel and Palestine has raised concerns over the stability of the region and its potential impact on oil supplies. This, in turn, has helped support oil prices in recent days.
Moreover, market watchers are also keeping a close eye on inflation concerns. Recently, the Consumer Price Index (CPI) for the United States increased by 0.8% in April, substantially exceeding the expectations of a 0.2% rise. While oil prices have historically been sensitive to inflation, the current surge in price levels may provoke a response from the Federal Reserve, which could impact the trajectory of oil prices in the near term.
Furthermore, the future of the US-Iran nuclear deal may also influence the oil market. The ongoing negotiations between the two nations could impact the global oil supply, especially if Iran is allowed to re-enter the market and increase its oil exports. This would lead to a supply-demand imbalance and could exert downward pressure on oil prices.
Overall, the oil market continues to face a myriad of factors that can determine its future direction. While the recent decrease in US crude inventories has provided some support, concerns over the demand outlook, geopolitical tensions, and the potential supply-demand imbalance still loom large. Consequently, market participants must adopt a cautiously optimistic stance and closely monitor the unfolding economic and geopolitical developments to gauge the future trends in oil prices.