Crude oil prices edged lower on Wednesday under the pressure of the surprise US stockpile growth, as well as comments from the head of Russian state oil producer Rosneft, questioning the supply reduction agreement within the OPEC+ group.
The futures on US crude oil WTI depreciated by 0.86% to 53.01 USD per barrel, while Brent variety is 0.60% to 61.60 USD per barrel.
The crude oil prices have fallen sharply lately due to fears of slowing global demand, but the commodity has managed to gain some advance on Tuesday as markets have hoped to cut interest rates in the US.
The US crude oil inventories rose unexpectedly last week by 3.5 million barrels to 478 million barrels, according to the data of the American Petroleum Institute. For comparison, analysts’ expectations were for decline by 0.849 million barrels. The official data of the Energy Information Administration is expected later on Wednesday.
Oil markets have been affected by fears of a slowdown in global economic growth due to US-China trade war, and Donald Trump’s threats to tax all imports from Mexico.
At the same time the Organization of Petroleum Exporting Countries (OPEC) and its allies, including Russia, imposed production constraints. The group must decide later this month or early July whether to continue with supply cuts.
On Tuesday, however, the CEO of Rosneft, Igor Sechin, said he would seek compensation from the government if the restrictions were extended. Average daily production dropped to a three-year low after the polluted crude oil was clogging the main export route.
“Does it make sense for Russia to cut (oil production) if the US immediately takes our market share”, said Sechin. He believes that the country should defend its market share.
US crude oil inventories
The American Petroleum Institute (API) reported a surprise build in crude oil inventory of 3.545 million barrels for the week ending May 31, coming in over analyst expectations of a 208,000-barrel drawdown in inventories. The build came as a blow to oil prices, with inventory gains seen in Cushing inventory too, as well as builds in gasoline and distillates.
Last week, the API reported that the string of surprise inventory builds had stopped, reporting a draw in crude oil inventories of 5.265 million barrels. A day later, the EIA estimated that US inventories had decreased by 300,000 barrels.
The net build is still a significant 30.20 million barrels for the 23-week reporting period so far this year, using API data.
The API this week reported a build in gasoline inventories for the week ending May 31 in the amount of 2.696 million barrels. Analysts estimated a build in gasoline inventories of 711,000 barrels for the week.
Distillate inventories rose by a staggering 6.314 million barrels for the week, while inventories at Cushing rose by 1.408 million barrels.
Crude oil price forecast
Forget the trade war and pessimism for the growth of the world economy. Citigroup continues to stick to its target price for Brent oil, which according to bank analysts will reach 78 USD per barrel in the next three months.
Supply risks, growing demand for the summer season, the positioning of the funds and a tight market are some of the reasons for the bank’s optimism. Citi’s forecast means a price increase of 28% over current levels.
Given the oil price collapse at the end of 2018 and Saudi Arabia’s commitment to reducing its oil reserves, it is unlikely that we will witness a rapid increase in yields in the coming summer months, according to the analysis.
A number of technical indicators also support the optimism of the bank. The 14-day relative power index fell to 23, well below the threshold of 30, suggesting oversold sales. Brent oil price also reached the lower Bollinger line, which is an indicator of an impending jump.
Recycled quantities of refineries worldwide need to be increased by up to 4 million barrels per day in the third quarter compared with the previous three months, against a backdrop of higher consumer demand. At the same time, central banks are already reacting to counter economic slowdown, analysts say.
“It is believed that the markets have a short memory. It is hard to forget, however, that over the past few months most oil market events have actually led to a more tight market”, add the analysis of Citi.