As a result of market reactions to rising petroleum stocks in the US, the world’s largest oil user, oil prices fell on the global commodities market. The Middle East’s unpredictability put pressure on Brent yesterday.
According to market statistics, the closing price of ICE Brent crude dropped by 0.6% to $82.64 per barrel from $83.16 per barrel during the previous trading session. Additionally, West Texas Intermediate (WTI) fell 0.64% from the previous session’s closing price of $78.38 per barrel, trading at $77.88 per barrel at the same time.
The American Petroleum Institute (API) reported data late on Tuesday that showed US crude oil stocks had increased by 509,000 barrels, against the market’s anticipation of a drawdown. This data helped to support oil prices.
The rise in commercial crude oil reserves reflected market perceptions of weakening domestic demand to drive prices down. Further price reductions are likely if US Energy Information Administration (EIA) data later on Wednesday shows a inventory drawdown against estimates of a stock rise.
Meanwhile, the increasing value of the US dollar against other currencies, which rose by 0.12% to 105.54, curtailed the fall in prices by making oil expensive for other currency-holding traders.
However, the escalating geopolitical tensions on the Palestinian side of the Rafah border crossing due to the Israeli attacks continue to influence oil prices. Yemen’s Houthi group threatened Tuesday to expand its attacks on shipping if the Israeli army invaded the city of Rafah in the southern Gaza Strip.
The Israeli escalation in the Gaza Strip and the West Bank and their threat to invade Rafah will be met with a Yemeni response and the launching of the fourth round of escalation,’ Allama Muhammad Muftah, the chairman of the Houthi-run Supreme Committee for Supporting Al-Aqsa, told the Al-Masirah TV channel.
These developments are raising market fears that the conflict in the Middle East, the main oil-producing region, could intensify and put upward pressure on prices.
Oil prices came under further pressure yesterday. ICE Brent briefly traded below US$83 and to its lowest level since mid-March, ING said in a note. A dampening factor was a report that Russia’s deputy prime minister, Alexander Novak, said that OPEC+ was looking at the possibility of increasing oil output.
However, Novak has since denied that the group is considering a potential increase in supply. Expectations are that members will extend their additional voluntary supply cuts beyond the second quarter of this year.
“Our oil balance suggests that there is no need for a full rollover of the 2.2m b/d of cuts. Instead, a partial rollover should be enough to keep the market balanced for the remainder of the year”, analysts sated.
However, recent price action increases the risk that full cuts are rolled over, which in turn increases the risk of OPEC+ overtightening the oil market later in the year.
The American Petroleum Institute, API, numbers released overnight were moderately bearish due to stock builds in both crude and products. While US crude oil inventories are estimated to have increased by only 500k barrels over the week, gasoline and distillate stocks increased by 1.5m barrels and 1.7m barrels, respectively. In addition, crude oil stocks at the WTI delivery hub, cushing, grew by 1.3m barrels over the week.
The Energy Information Administration’s (EIA) latest Short-Term Energy Outlook saw little change in US production estimates. The EIA forecasts that US crude oil output will grow by around 280k b/d year on year to a record 13.2m b/d in 2024, and then grow a further 520k b/d in 2025 to average 13.72m b/d.
According to ING note, both estimates are essentially unchanged from the previous month’s forecast. For natural gas, the EIA has revised its production estimates down for this year. Dry gas production is expected to fall 0.77bcf/day YoY to 103bcf/day in 2024, slightly less than last month’s 103.59bcf/day forecast.
ING said low-price environment in the US and reduced drilling activity will be key reasons behind this expected slowdown. However, the EIA expects dry gas production to return to growth in 2025, growing by 1.78bcf/day to a record 104.78bcf/day. This supply growth will be price-dependent, analysts stated.
