The recent week witnessed a notable decline in crude oil prices as both WTI and Brent settled below their 200-day moving averages, losing 7 per cent of their value. This drop was attributed to easing geo-political tensions amidst talks between Hamas and Israel, although the chances of a resolution remain low due to conflicting demands from the parties involved.
Furthermore, commercial crude oil inventories recorded a significant increase of 7.3 million barrels for the week ending April 26, reaching the highest level since June 2023. The refinery utilization rate fell to 87.5 per cent, raising concerns as historically, utilization rates have been higher during the US summer driving season, which typically starts in June.
In addition to the rise in crude oil inventories, gasoline stocks also saw an increase of 300,000 barrels, contrary to forecasts that predicted a drawdown of 1.1 million barrels. The total US demand for key fuels has been on a downward trend for the past five weeks, reaching levels last seen during the Covid-related shutdowns in 2020, indicating a visible erosion in demand.
OPEC+, which includes Russia and other non-OPEC members, is scheduled to meet on June 1 in Vienna to discuss output policies. There are expectations that the cartel will extend their voluntary oil output cuts of 2.2 million barrels per day beyond June, as the group is currently cutting output by 5.86 million bpd, equivalent to about 5.7 per cent of global demand.
Moreover, economic indicators such as US employment data showed signs of labor market rebalancing, with April hiring at 175,000 but previous months revised downward. The unemployment rate ticked up to 3.9 per cent, and hourly earnings dropped to 3.8 per cent for the first time since June 2021. The drop in job openings to 8.5 million, the lowest level in more than three years, and the ISM Manufacturing PMI falling into contraction territory, paint a picture of the current economic landscape.