The benchmark crude oil WTI (CM:CL) has slumped by nearly 5% to $79.69 over the past week as rising U.S. oil inventories weighed on traders’ sentiment. Additionally, the war risk premium continues to fade from oil prices over possibly cooling tensions in the Middle East.
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Rising U.S. Stockpiles
Data from the U.S. Energy Information Administration (EIA) indicated an increase of 7.3 million barrels in crude inventories versus an anticipated decrease of 2.3 million barrels for the week ended April 26. Earlier, numbers from the American Petroleum Institute (API) pointed to a buildup of 4.9 million barrels in U.S. commercial stockpiles for the week ended April 26.
The surprise buildup in the U.S. stockpiles came just as ceasefire discussions between Israel and Hamas eased concerns of a wider conflict in the Middle East.
In addition to this, the higher-for-longer interest stance by the Fed could likely weigh on demand for oil in the coming periods. Nevertheless, markets breathed a sigh of relief after the U.S. central bank indicated that a rate hike was not on the cards (at least not yet).
OPEC’s Supply Cuts
Separately, OPEC’s supply cuts seem to be weighing on its members. Saudi Arabia’s economy contracted for a third straight quarter and its overall GDP slumped by 1.8%. Saudi Arabia is the largest exporter of oil globally. According to a Reuters survey, OPEC’s output fell in April owing to lower exports from Iran, Iraq, and Nigeria. Amid this trend, OPEC’s next meeting on June 1 remains a key event to keep an eye on.
As OPEC’s efforts to curtail supply take effect, member nations are feeling the strain. Notably, Saudi Arabia, the world’s largest oil exporter, faced economic contraction for the third consecutive quarter, with its GDP declining by 1.8%. This decline highlights the challenges faced by oil-dependent economies.
Meanwhile, a recent Reuters survey revealed a dip in OPEC’s output for April, attributed to reduced exports from key producers like Iran, Iraq, and Nigeria. Against this backdrop, OPEC’s upcoming meeting on June 1 emerges as a pivotal event, offering insights into the organization’s strategy amidst shifting market dynamics.
Is Crude Oil Bullish, Bearish, or Neutral?
For now, the U.S. potentially utilizing the drop in oil prices to replenish its strategic petroleum reserve (SPR) could lend some strength to oil. Meanwhile, the TipRanks Technical Analysis tool is beginning to flash a Neutral signal for oil on a weekly time frame.
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