Commodities
Oil prices rise as US inventories dip; CPI inflation in focus
Investing.com– Oil prices rose in Asian trade on Wednesday as industry data showed a drop in U.S. inventories and boosted expectations of tighter supplies, although anticipation of key inflation data kept gains limited.
Crude markets took some positive cues from Federal Reserve Chair Jerome Powell, who said that the world’s biggest economy remained resilient, while China’s outlining of plans for a massive 1 trillion yuan ($138 billion) bond issuance also factored into some strength.
Expectations of tighter North American markets were also furthered by a swathe of devastating wildfires in Canada. Fort McMurray- a major Canadian oil sands city- saw about 6000 people evacuated due to an approaching fire.
Still, gains in crude were limited by hotter-than-expected U.S. inflation data on Tuesday. The reading saw markets turn fearful of a stronger-than-expected inflation reading on Wednesday.
expiring in July rose 0.4% to $82.70 a barrel, while rose 0.4% to $77.97 a barrel by 21:06 ET (01:06 GMT).
US inventories shrink more than expected- API
Data from the (API) showed on Tuesday that U.S. oil inventories shrank 3.1 million barrels in the week to May 10, more than expectations for a draw of 1.1 million barrels.
The data also showed a decline in gasoline stockpiles, while distillates rose by 349,000 barrels.
The reading spurred some hopes that U.S. fuel demand was picking up with the advent of the travel-heavy summer season- a trend that could help tighten global crude supplies, even as U.S. production remains at record highs.
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Shrinking U.S. inventories and potential supply disruptions in Canada also present a tighter outlook for North American crude markets.
The API data usually heralds a similar reading from official , which is due later on Wednesday.
Inflation jitters in play as CPI data looms
Oil markets remained on edge ahead of key U.S. CPI data due later on Wednesday, especially as PPI data for April read hotter-than-expected.
Traders were wary of any more signs of sticky U.S. inflation, which are likely to push the Fed into keeping interest rates high for longer- a scenario that bodes poorly for crude.
High rates are expected to stall global economic activity and potentially dent demand for oil.
Investing.com — Oil prices settled lower Friday, ending the week with a loss as weaker U.S. nonfarm payrolls stoked concerns about an economic-led slowdown in crude demand.
At 2:30 p.m. ET (1430 GMT), the futures (WTI) traded fell 2.1% to settle at $67.67 a barrel, while contract fell 2.2% to $71.06 per barrel.
U.S. economic slowdown worries resurface after weak jobs report
The US economy added fewer jobs than anticipated in August, but rose from a sharply revised July figure, according to Labor Department data that could factor into the Federal Reserve’s next policy decisions.
Nonfarm payrolls came in at 142,000 last month, up from a downwardly-revised mark of 89,000 in July. Economists had called for a reading of 164,000, up from the initial July mark of 114,000.
Following the release, bets that the Fed will introduce a deeper 50 basis-point rate cut — rather than a shallower 25 basis-point reduction — increased.
Concerns about the demand come just a day after OPEC+ said it had agreed to postpone a planned increase in oil production for October and November.
U.S., Europe working on Iran sanctions
Geopolitical tensions ratcheted up on Friday after the U.S. and Europe they were working on sanctions to impose on Iran after the Tehran sent missiles to Russia.
The U.S. had previously warned Iran about transferring missiles to Russia, saying it would represent a major escalation in Iran’s support of Russia’s war against Ukraine.
(Reuters) – Goldman Sachs adjusted its expectations for OPEC+ oil production saying it now expects three months of production increases starting from December instead of October, the bank said in a note on Friday.
OPEC+ has agreed to delay a planned oil output increase for October and November, the producers group said on Thursday after crude prices hit their lowest in nine months, adding it could further pause or reverse the hikes if needed.
However Goldman Sachs maintained its range of $70-85 per barrel and a December 2025 Brent forecast at $74 per barrel.
The investment bank expects the effects of a modest reduction in OPEC+ supply in the upcoming months to be counterbalanced by easing effects from the current softness in China’s demand and faster-than-expected recovery of Libya’s supply.
“We still see the risks to our $70-85 range as skewed to the downside given high spare capacity, and downside risks to demand from weakness in China and potential trade tensions,” Goldman Sachs said.
Brent crude futures were down $1.63, or 2.24%, to $71.06 a barrel on Friday, their lowest level since December 2021. U.S. West Texas Intermediate crude futures fell $1.48 on Friday, or 2.14%, to $67.67, their lowest since June 2023. [O/R]
Investing.com — Strategists at Citi Research said oil prices could decline to around $60 per barrel by 2025, citing a significant market surplus as the primary driver.
While recent supply disruptions in Libya and a delayed production cut unwinding by OPEC+ have offered short-term support for Brent prices in the $70-72 range, Citi views this as temporary.
“At the time of writing, markets have not reacted to the OPEC+ decision, with Brent around flat to the 4 September close. Still, the Libyan situation could take months rather than a week to resolve, strategists wrote.
They highlight the likelihood of a strong market surplus emerging next year, pushing prices lower.
“We recommend selling on a bounce toward ~$80 Brent, as we look ahead to moves down to the $60 range in 2025 as a sizeable market surplus emerges,” the note states.
OPEC+ has delayed the start of its planned production cut unwind from October 2024 to December 2024, with the process now set to conclude by the end of 2025. This decision comes in response to recent market weakness and price declines, despite ongoing disruptions to Libyan oil supplies and broader economic concerns in the U.S. and China.
Separately, Bank of America’s Commodities Research team has revised down its price forecast to $75 per barrel for the second half of 2024, down from nearly $90, and for 2025, reduced from $80.
The team cites concerns about growing global oil inventories despite assuming OPEC+ will delay planned production increases. They note that weaker demand growth, combined with record OPEC+ spare capacity exceeding 5 million barrels per day, has dimmed the outlook for oil prices.
“In effect, we now see Brent oil prices moving from the top toward the middle of our unchanged $60-80/bbl medium-term range faster than previously warned,” BofA strategists said. This surplus in capacity, along with slower demand, also reduces the risk of price spikes from potential geopolitical disruptions.
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