Expected Demand Slowdown Drags Oil Prices Down

Oil prices declined on market concerns over US demand, and a strengthening dollar index. The price trend is a reversal of the record achieved in the global market yesterday.

Brent slid by 0.16% to $81.50 per barrel. The American benchmark, West Texas Intermediate (WTI), traded at the same time at $76.19 per barrel, down 0.04% from Thursday’s close of $76.22 per barrel.

The US Energy Information Administration’s (EIA) recent report revealed there was a substantial rise in the country’s commercial crude oil inventories, signalling a demand decline in the world’s largest crude oil consumer. US inventories surged by approximately 5.5 million barrels, reaching a total of 427.4 million barrels, exceeding market expectations of a rise of about 674,000 barrels.

Furthermore, the rise of the US dollar’s value also supported declines in dollar-indexed oil prices by raising the cost of crude for holders of other currencies, which put downward pressure on prices. Meanwhile, supply risks in the Middle East are intensifying and bolstering price upticks with Israel’s renewed attacks on Gaza.

On Thursday, oil rallies as hopes of a cease-fire disappear –ING

Oil markets rallied yesterday with ICE Brent settling a little more than 3% higher on the day, which saw the market closing well above US$81/bbl. The catalyst for the move appears to be Israel refusing to agree on a cease-fire with Hamas. There had been suggestions, or at least hope, that markets could see a cease-fire, which could have helped to de-escalate the situation.  But clearly, the concern over further escalation.

Refined product draws in the US over the last week have been supportive for margins, while Red Sea disruptions and refinery outages also continue to provide support to refined product markets, particularly middle distillates. The latest data from Insights Global show that refined product inventories in the ARA region fell by 106kt last week to 5.21mt. These declines were driven by gasoil, fuel oil and jet fuel, which fell by 71kt, 79kt and 54kt respectively.

Middle distillate stocks in Europe remain tight, which suggests that cracks will remain well supported at least in the short term. US natural gas prices came under pressure yesterday with front-month Henry Hub futures settling more than 2.5% lower on the day.

This weakness has continued in early morning trading today, which sees the market trading comfortably below US$2/MMBtu. EIA numbers yesterday showed that US natural gas storage fell by just 75bcf over the last week, which was well below the 5-year average draw of 193bcf for this time of year. US gas storage remains comfortable at 10.6% above the 5-year average.

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