By Giulia Petroni
Here's a look at what happened in oil markets in the week of May 6-10 and what will be in focus in the days to come.
OVERVIEW: Oil prices fluctuated between positive and negative territory, with losses capped by a weekly fall in U.S. crude inventories and lack of further progress in ceasefire talks between Israel and Hamas. Brent crude currently trades around $83 a barrel, while West Texas Intermediate is at around $78 a barrel.
MACRO: Traders are watching closely for any hints on the potential timing and extent of U.S. interest-rate cuts, following a run of economic data in the first quarter that pointed to stubborn inflation pressures. Lower rates are typically positive for oil markets, as they tend to boost the economy and therefore demand for the commodity.
The latest U.S. jobs report provided some positive signals, showing unemployment claims rose to their highest level in more than eight months last week, boosting hopes that the Federal Reserve would lower rates this year.
GEOPOLITICAL RISKS: Tensions are still high in the Middle East, but haven't materially affected oil supplies yet, limiting price gains. The diplomatic relationship between the U.S. and Israel is in focus after the Biden administration halted a shipment of weapons and threatened to suspend other arms shipments, hoping to make Israel rethink its assault on Rafah.
Israel stepped up attacks on Gaza's southern city and seized control of the crossing linking the Gaza Strip to Egypt earlier this week after saying the terms of the latest Egyptian-Qatari ceasefire proposal that Hamas accepted didn't meet its core demand.
The fate of a potential deal--which would include a temporary ceasefire and the release of Israeli hostages and Palestine prisoners--remains uncertain, adding pressure to oil markets.
SUPPLY AND DEMAND: OPEC+ supply is back in focus, with most analysts now saying they expect the cartel and its allies to extend their voluntary output curbs into the second half of the year at their upcoming meeting in June. Oil timespreads--the premium of a front-month contract to the second month--are softening, pointing to broader market weakness. With Brent crude prices now below the $85 a barrel, analysts say it will be difficult for OPEC+ to roll back cuts as previously planned.
Meanwhile, on the demand side, this week's inventory report from the U.S. Energy Information Administration was bullish for oil. Commercial crude oil stocks fell by 1.4 million barrels to 459.5 million barrels in the week ended May 3, suggesting a demand recovery in the top consumer. In China, the latest trade data showed crude imports rose on year in April, sending a positive signal to markets as the country remains a key driver of demand trends this year.
In its latest Short-Term Energy Outlook, the EIA trimmed its forecast for Brent and WTI for 2024 and 2025, and said it expects production cuts by OPEC+ and persistent geopolitical tensions to keep the international oil benchmark below the $90/bbl mark for much of the current year.
WHAT'S AHEAD: Any developments in ceasefire negotiations between Israel and Hamas, as well as the extent of Israel's military operations in Rafah, will be a main driver of price action next week. On the macroeconomic side, investors await U.S. CPI data due on Wednesday, as it could influence the Fed's decision on rate cuts.
Market watchers will also keep a close eye on OPEC and the International Energy Agency's monthly reports due on Tuesday and Wednesday, respectively, for any potential changes in supply and demand forecasts. According to analysts at Commerzbank Research, prices would likely remain under pressure if the agencies were to raise their forecast for non-OPEC production or lower their estimates for global demand. Still, the downside potential would be limited as, in that case, the likelihood of OPEC+ extending cuts would be even more likely.
Write to Giulia Petroni at giulia.petroni@wsj.com
(END) Dow Jones Newswires
05-10-24 1315ET
