Oil Prices Decline as Market Reacts to US Stockpile
Oil prices fell further on midweek due to larger-than-expected crude inventory build in the US, signalling a demand drop in the world’s biggest oil consumer. The latest data from the American Petroleum Institute (API) shows that the US crude oil inventory increased by 8.43MMbbls last week.
This is more than the average market expectations for a build of around 2.6MMbbls/d, ING commodities strategists said in a note today. This would be the fifth consecutive week of addition to the US oil inventories. Brent crude traded at $82.20 per barrel, representing a 0.56% drop from the closing price of $82.66 a barrel in the previous trading session.
The American benchmark West Texas Intermediate (WTI) traded at $78.36 per barrel at the same time, for a 0.65% fall after the previous session closed at $78.87 per barrel. The American Petroleum Institute’s latest estimate released on Tuesday revealed that crude oil inventories exceeded market expectations, increasing by 8.42 million barrels last week.
This marked the fifth consecutive week of rises relative to the market prediction of a stock rise of 1.8 million barrels. Official stock data from the US Energy Information Administration will be released later on Wednesday.
The focus is gradually shifting to the OPEC+ decision on voluntary output cuts for the second quarter of 2024. Since announcing the voluntary cuts at the end of November 2023, ICE Brent has traded soft amid demand concerns and has just recovered recently only to November levels of US$83/bbl.
ING analysts said demand prospects remain muted in the short-term due to the economic slowdown and the group may need to keep cuts in place to maintain market balance. Elsewhere, the US dollar index, which measures the US dollar’s value against other currencies, increased 0.16% to 103.99. The strong dollar is expected to lower demand by making oil more expensive for foreign currency holders.
Uncertainty as to when the US Federal Reserve (Fed) will start reducing interest rates also supported price declines. Analysts are awaiting the release of economic data in the US along with speeches from Fed officials this week for cues on the Fed’s interest rate policy.
Fed Board member Michelle Bowman said Tuesday that the bank is in no rush to cut interest rates, given the upside risks that could halt progress in reducing inflation. However, US macroeconomic data released Tuesday signalled slowing growth and triggered concerns about a fall in oil demand.
Durable goods orders exceeded expectations by decreasing 6.1% monthly in January and recording the biggest decline since April 2020.
US Consumer Confidence data, a survey measuring consumer attitudes, spending plans, inflationary expectations, stock prices and interest rates, showed a monthly drop of 4.2 points to 106.7 in February, decreasing for the first time in four months. Meanwhile, ongoing geopolitical risks in the Red Sea and news stories indicating that OPEC+ will extend supply cuts have limited price falls.
Crude oil has been trading soft in the morning session today largely amid signs of a larger inventory build in the US. However, time spreads tightened for both Brent and WTI showing stronger demand for crude oil in the physical market.
Prompt spreads for ICE Brent crude increased to a 5-year high of around US$1/bbl of backwardation while for WTI it tightened to around US$0.6 per barrel of backwardation, ING said in a note. #Oil Prices Decline as Market Reacts to US Stockpile CBN Clears $400m FX Backlog, Claims Naira Grossly Undervalue
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