Quantum Commodity Intelligence – Crude oil futures experienced a slight uptick on Wednesday as the market sought a support floor following significant losses earlier in the week, which saw prices drop by as much as 6%.
As of 1815 GMT, front-month August 2024 ICE Brent futures were trading at $78.33 per barrel, up from Tuesday’s settle of $77.52 per barrel and matching the intraday high of $78.33 per barrel. Concurrently, July 2024 NYMEX WTI was at $74.03 per barrel, compared to Tuesday’s settle of $73.25 per barrel.
The market was already under pressure this week due to mixed signals from OPEC over the weekend. An announcement of extended production cuts for Q3 was followed by plans to increase output in Q4.
Further pressure on prices came Wednesday after the American Petroleum Institute (API) reported a significant increase in crude stockpiles, which rose by 4 million barrels last week. This was contrary to expectations for a drawdown of about 2 million barrels. Additionally, gasoline inventories rose by 4 million barrels, and distillates saw a build of 2 million barrels, contributing to an overall net increase of 10 million barrels.
Later on Wednesday, the U.S. Energy Information Administration (EIA) released weekly data showing a more modest rise in commercial crude oil inventories by 1.2 million barrels, helping to stabilize the market somewhat. However, gasoline stocks increased by 2 million barrels and distillates by 3.2 million barrels for the week ending May 31.
OPEC+ Output Plans Impact Market
The most significant factor affecting the market this week has been the OPEC+ decision to raise output starting in October, which has contributed to a 6% drop in prices before a minor recovery.
“The OPEC+ group agreed on Sunday to extend most of its output cuts into 2025 but allowed for voluntary cuts to be gradually unwound starting in 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.
Compliance issues also persist, with initial surveys indicating that OPEC exceeded its production quotas in May, led by Iraq. According to a Bloomberg survey, Iraq, OPEC’s second-largest producer, pumped an average of 4.24 million barrels per day last month, exceeding its revised quota by 290,000 barrels per day.
Supportive Factors
Despite these challenges, midweek prices found some support. U.S. Energy Secretary Jennifer Granholm indicated that the United States might accelerate the replenishment of the Strategic Petroleum Reserve, with maintenance expected to be completed by the end of the year.
Additionally, China’s Caixin PMI Services index rose to 54.0 in May, up from 52.5 in April, marking the seventeenth consecutive month of expansion and the highest reading since July 2023.
These factors provided a degree of stability to the market amidst the ongoing volatility and concerns over supply and demand dynamics.
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