??Oil Prices Hold Steady Despite Unexpected Inventory Decline; Futures Remain 8% Below April Peak!
Oil prices rebounded on Wednesday following a decline earlier in the day, as new data revealed a decrease in US inventories last week. However, despite this uptick, futures remain approximately 8% lower than their peak in April.
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West Texas Intermediate (WTI) crude oil hovered below $79 per barrel on Wednesday, down about $8 from its closing high of $86.91 per barrel on April 5th. Meanwhile, Brent crude, the international benchmark, traded above $83 per barrel, showing an 8% decrease from its peak closing price of $91.17 over a month ago.
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The latest US government data, released on Wednesday, showed a surprising drop of 1.4 million barrels in crude oil inventories for the previous week. Prior to this, futures had been on a downward trend, influenced by the American Petroleum Institute's storage figures released on Wednesday, which indicated a larger-than-expected build. On Tuesday, the Energy Information Administration revised its outlook, forecasting a slower growth in oil demand compared to previous estimates.
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The energy markets have faced pressure since April due to heightened diplomatic efforts aimed at securing a ceasefire agreement between Israel and Hamas, although such a deal has yet to materialize.
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Rebecca Babin, a senior energy trader at CIBC Private Wealth in the US, noted that news of a potential ceasefire could potentially drive crude prices down by $3-4, provided it signifies a genuine move toward lasting peace rather than just a temporary halt in hostilities. However, despite this potential for price reduction, various fundamental, technical, and macroeconomic challenges suggest that it's premature to adopt a bullish stance. Babin suggested that while there may be an opportunity to buy on a market dip, it's advisable to refrain from doing so for the time being. She indicated that Brent crude could possibly test $80 and West Texas Intermediate (WTI) $75 in the near term, presenting an opportune moment to reconsider long positions.
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Oil prices saw an uptick earlier in the year due to incidents such as Houthi rebel attacks on Western cargo vessels in the Red Sea and drone strikes by Ukrainian forces on Russian refineries. Most analysts anticipate that OPEC+ will opt to prolong its existing production cuts when the oil alliance convenes for its next meeting.
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Goldman Sachs analysts remarked in a recent note that the increasingly bearish market fundamentals raise the likelihood of a full extension of OPEC+ cuts beyond the second quarter of the year.
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