Oil Prices Rebound After Six Consecutive Weekly Crude Drawdowns

Oil Prices and Geopolitical Risks

Oil prices have seen a significant recovery overnight, following the Bank of Japan's notable dovish 'fold', which overshadowed the comprehensive inventory builds reported by the American Petroleum Institute (API). Traders are also keeping a close eye on geopolitical risks. In the Middle East, countries are preparing for a possible Iranian attack on Israel in retaliation for the assassinations of Hezbollah and Hamas leaders. In addition, Ukrainian forces have carried out an unusual cross-border attack into Russia.

API and DOE Data

The API reported the following data: Crude +0.18mm, Cushing +1.07mm, Gasoline +3.31mm, and Distillates +1.22mm. However, the Department of Energy (DOE) reported a decrease in Crude stocks of -3.728mm (-800k exp), Cushing +579k, Gasoline +1.34mm, and Distillates +949k. This marks the sixth consecutive week of falling Crude stocks, the longest streak of inventory drawdowns since January 2022.

US Crude Stocks and Production

According to Bloomberg, total US Crude stocks have dropped to their lowest level since February. The Biden administration has added 736k barrels to the Strategic Petroleum Reserve (SPR), marking the largest weekly addition since June. US crude production reached a new record high last week, even as the rig count continues to decrease.

WTI and Market Outlook

West Texas Intermediate (WTI) is maintaining its gains following the DOE data. However, oil still faces challenges from declining demand in China and the US, as well as the potential increase in supply from the OPEC+ alliance starting next quarter. Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd., stated that those who are convinced of an inevitable economic contraction will be eager to abandon equities and commodities in the near future. However, the majority may be hesitant to do so unless clear signs of a recession appear. Further price increases may be triggered by an escalation of conflicts in the Middle East, but a sustained increase would require a disruption to crude output from the region.

Bottom Line

This rebound in oil prices amidst geopolitical risks and economic uncertainties raises some interesting questions. What do you make of this situation? How do you see the oil market evolving in the face of these challenges? Do share your thoughts and this article with your friends. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.