Market jitters intensified today as oil prices sunk to their lowest point since mid-March, fueled by a combination of rising US stockpiles and waning geopolitical tensions. Brent crude slumped towards $82 a barrel, while West Texas Intermediate dipped below $77.
Industry estimates suggest a significant increase in US oil stockpiles, particularly at the key Cushing hub, further dampening market sentiment. This follows a broader trend of rising gasoline and distillate inventories nationwide. Official data confirming these figures is expected later today.
The bearish inventory report adds to recent indicators pointing towards a softening oil market. Key North Sea derivatives contracts, for instance, are currently priced in a manner that signals an oversupply situation – the first such instance since March. Additionally, timespreads, another gauge of market health, have also weakened.
Oil’s downward spiral began in early April, with losses in three out of the last four weeks. This weakness extends beyond timespreads, encompassing processing margins as well. The primary catalyst behind this decline appears to be the unwinding of the geopolitical premium previously attached to oil due to Middle Eastern tensions. As these tensions recede, market focus has shifted back to a cooling global demand picture.
“Oil market indicators have displayed a marked softening in recent weeks, with prices falling from their recent highs,” noted Morgan Stanley analysts in a research report. They added, however, that “while the oil market isn’t currently tight, we anticipate a seasonal uptick in demand in the coming months.”
A strengthening US dollar further complicates matters by making oil more expensive for many international investors. The greenback is currently enjoying its third consecutive day of gains, according to a Bloomberg gauge. Additionally, oil’s breach below its 100-day moving average is exacerbating the current price weakness.
Next month, the Organization of the Petroleum Exporting Countries (OPEC) is scheduled to convene to discuss production policy. The group previously implemented production cuts in the first half of the year to bolster prices. A Bloomberg survey reveals that most traders anticipate an extension of these curbs, possibly even through the end of 2024.
While the situation in the Middle East remains tense, with Israeli forces entering the Gazan city of Rafah, a definitive ceasefire agreement between Israel and Hamas continues to elude negotiators.
