Oil Struggles Amidst Higher Price Expectations
Crude oil prices struggle to make a reasonable uptrend on Thursday amid growing concern over the global economic slowdown and a drop in gasoline demand in the United States (U.S.)
International benchmark Brent crude traded at $77.04 per barrel, translating to a 0.12% gain from the closing price of $76.95 a barrel in the previous trading session.
The American benchmark West Texas Intermediate (WTI) traded at the same time at $72.64 per barrel, up 0.15% from the previous session’s close of $72.53 per barrel.
US commercial crude oil inventories fell by 500,000 barrels to 459.2 million barrels during the week ending June 2, according to data released by the Energy Information Administration (EIA) late Wednesday.
The fall in inventory, which was lower than the American Petroleum Institute’s expectation of a fall of 1.7 million barrels, signals recovering demand.
However, US gasoline inventories rose by around 2.7 million barrels to 218.8 million barrels during the week ending June 2, signaling a drop in demand ahead of the summer travel season, which could lead to a further economic slowdown.
The rise in gasoline inventories and data supporting expectations of a global economic slowdown stifled oil price increases. In China, the world’s top oil importer, exports and imports fell in May, indicating that the economic recovery is still fragile.
According to the General Administration of Customs data, exports decreased by 7.5% to $283.5 billion in May compared to May 2022, while imports decreased by 4.5% to $217.7 billion.
Uncertainties regarding the monetary policies of global central banks are also reducing market risk appetite while putting prices under pressure.
Oil Cut to Put Price Higher
The decision by OPEC+ to extend the existing production cuts with extra optional cuts of 1 million barrels per day (bpd) from Saudi Arabia for July should provide price support for the remainder of 2023, according to Wood Mackenzie on Thursday.
According to Ann-Louise Hittle, vice president of macro oils at Wood Mackenzie, the outlook for oil demand and supply remains broadly supportive for Brent prices in the second half of 2023, setting aside various market fears of a possible global recession.
Taking into account the recent OPEC+ decision to raise the forecast stock draw in the third quarter, mostly due to the additional voluntary production cuts by Saudi Arabia, the agency anticipates a significant global stock draw in this quarter.
Wood Mackenzie Macro Oils Service projects global oil demand will rise to 2.4 million barrels per day (bpd) annually, surpassing the 1.5 million bpd year-on-year gain in total liquids supply, with Brent forecast to average $84.70 per barrel this year.
If market concerns about an economic slowdown subside, Wood Mackenzie predicts that global oil demand will exceed total liquids output from the second to the fourth quarters of 2023.
Hittle expects that OPEC+ will face several tricky issues at its biannual meeting, mainly ongoing fears in the greater financial markets of China’s lack of progress in its economic recovery, putting demand growth at risk.
]he also cited the geopolitical complications of reorganizing, reassigning, and agreeing on an additional production cut for the rest of this year.
However, Hittle conceded that ‘by OPEC+ rolling over the current agreement, and with Saudi Arabia announcing a further voluntary cut, the group has gone some way towards achieving its goal of supporting prices.’
According to Wood Mackenzie’s latest outlook, oil demand in China will grow by almost 1 million bpd per year in 2023, about half of which will come from gasoline and jet fuel due to a robust recovery in personal mobility. #Oil Struggles Amidst Higher Price Expectations
