U.S. Inventory Data Supports Prices
U.S. crude oil and gasoline inventories fell for the week ended July 5, signaling potential strength in summer fuel demand. The Energy Information Administration reported a significant 3.4 million barrel drawdown in crude stockpiles, far exceeding expectations. This substantial reduction in inventories provided crucial support for oil prices, offsetting some bearish factors in the market.
Conflicting Demand Outlooks
OPEC and the International Energy Agency (IEA) presented starkly conflicting demand forecasts, adding uncertainty to the market. OPEC maintains a bullish outlook, projecting demand to increase by 2.2 million barrels per day this year, citing solid economic growth. In contrast, the IEA sees demand growing just under 1 million bpd, pointing to a softening global economy, particularly in China. This disparity in forecasts has left traders grappling with mixed signals about future oil demand.
Economic Indicators and Fed Policy
June consumer inflation eased to its lowest level in over three years, boosting hopes for potential Federal Reserve interest rate cuts. This development initially supported oil prices, as lower interest rates typically stimulate economic growth and oil demand. However, wholesale prices rose 0.2% in June, slightly higher than expected, tempering optimism about rapid monetary easing. The market remains highly sensitive to economic data and Fed commentary, as these factors significantly influence oil demand projections.
Price Performance and Expert Forecasts
U.S. crude oil posted a 1.14% loss for the week, while Brent fell by 1.74%, snapping a four-week winning streak. Despite this pullback, JPMorgan’s head of global commodity strategy, Natasha Kaneva, views the retreat as overdue and maintains a bullish outlook. The bank has set a September target of $90 per barrel for Brent, based on expectations of tightening crude and liquids balances in the summer months, which could lead to significant stock draws.
Geopolitical Factors
While the week began with easing Middle East tensions due to potential ceasefire negotiations in Gaza, significant gaps remained between parties involved. This ongoing uncertainty continues to influence the geopolitical risk premium factored into oil prices. Additionally, while Tropical Storm Beryl’s impact on Gulf Coast oil infrastructure was minimal, forecasts predict an “extremely” active storm season, which could affect oil production and transportation in the coming months.
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