European crude oil futures saw minimal changes in early trading hours on Wednesday, as benchmarks sought to stabilize following significant losses earlier in the week.
As of 08:50 GMT, August 2024 ICE Brent futures were priced at $77.56 per barrel, slightly up from Tuesday’s close of $77.52 per barrel. Concurrently, July 2024 NYMEX WTI was trading at $73.26 per barrel, a modest rise from the previous day’s settlement of $73.25 per barrel.
This week’s market volatility was largely triggered by mixed signals from OPEC. Over the weekend, the organization announced an extension of production cuts into the third quarter, only to indicate an increase in output for the fourth quarter.
Further pressure on prices came Wednesday with the release of data from the American Petroleum Institute, which showed a surprising increase in crude stockpiles by 4 million barrels last week, defying expectations of a 2 million barrel draw. Gasoline inventories also rose by 4 million barrels, and distillates saw a 2 million barrel build, resulting in a total net oil inventory increase of 10 million barrels, according to API figures.
Market Impact
The most significant impact on prices this week stemmed from OPEC+’s plan to ramp up production starting in October, which has already slashed headline prices by about 6% before a slight rebound.
“The OPEC+ group agreed on Sunday to extend most of its output cuts into 2025 but left room for voluntary cuts to be gradually unwound as of October. This means that increased supply later this year would come at a time when demand is already showing signs of weakness,” commented Fiona Cincotta, an analyst at City Index.
Compounding concerns, initial surveys indicated that OPEC exceeded its production quotas in May, led by Iraq. According to a Bloomberg survey, Iraq, OPEC’s second-largest producer, averaged 4.24 million barrels per day last month, surpassing its revised quota by 290,000 barrels per day. This quota now includes additional reductions to compensate for overproduction in the first quarter.
Price Support Factors
Despite the bearish trends, prices found some support after U.S. Energy Secretary Jennifer Granholm indicated that the U.S. might accelerate the replenishment of the Strategic Petroleum Reserve, with maintenance expected to be completed by the year’s end.
Additionally, economic data from China provided a positive signal, with the Caixin PMI Services index rising to 54.0 in May, up from April’s 52.5. This marks the seventeenth consecutive month of expansion and the highest reading since July 2023.
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