Oil prices hovered near four-month lows on Wednesday, influenced by expectations of increased supply from OPEC+ later in the year and mixed economic signals from the United States.
Brent crude futures edged up 26 cents, or 0.3%, to $77.78 a barrel by 08:25 GMT, while U.S. West Texas Intermediate (WTI) crude futures gained 24 cents, or 0.3%, to $73.49 a barrel. Both benchmarks had dropped over 1% on Tuesday, reaching their lowest levels since early February, following a $3 per barrel decline on Monday.
The recent downturn in oil prices was triggered by news that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, plan to increase oil supply from the fourth quarter. This decision comes despite signs of slowing demand growth, causing concern among market participants.
Helima Croft, head of commodities research at RBC Capital, noted, “The current supply abundance is unsettling, even for those typically supportive of OPEC.” However, Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, assured that OPEC+ is prepared to halt or reverse the output increases if demand does not meet expectations. “The goal is to reintroduce barrels gradually without destabilizing the market,” Croft added.
Oil prices found some support from U.S. economic data indicating a larger-than-expected decline in job openings for April. This data suggests a potential easing of the labor market, which could aid the Federal Reserve in its fight against inflation and bolster the case for a rate cut in September. “Yesterday’s U.S. job data hints at a softer labor market and a possible September rate cut from the Fed,” remarked PVM Oil analyst Tamas Varga.
Additionally, U.S. crude stockpiles increased by over 4 million barrels in the week ending May 31, according to the American Petroleum Institute. Analysts had anticipated a 2.3 million barrel decline. Gasoline stocks also rose by more than 4 million barrels, doubling analysts’ expectations.
UBS analyst Giovanni Staunovo stated, “Renewed inventory draws are needed to push oil prices higher,” maintaining a bullish outlook on the belief that supply growth will lag behind demand growth in the coming months.
The U.S. Energy Information Administration is scheduled to release official stockpile data at 14:30 GMT on Wednesday. This data is particularly significant as it reflects fuel consumption around the Memorial Day holiday, marking the beginning of the U.S. driving season.
Logical Analysis
The current oil market presents both challenges and opportunities for investors. The planned increase in OPEC+ supply might create short-term volatility, but it also indicates the organization’s responsiveness to market conditions. Investors should watch for signals from OPEC+ meetings and U.S. economic data, which could provide more clarity on the market direction.
The unexpected rise in U.S. crude and gasoline inventories highlights the ongoing challenges in balancing supply and demand. However, a potential rate cut by the Federal Reserve could stimulate economic activity, potentially increasing oil demand. Investors should consider these factors when making investment decisions in the oil market.