WTI Crude Bounces Back – Fundamental Analytics

WTI crude oil futures rose to around $78 per barrel on Thursday, recouping losses from previous week’s sessions, driven by reinforced expectations of US interest rate cuts which could bolster economic activity and oil demand. This came after US consumer inflation eased to 2.9% in July, falling short of forecasts that it would hold steady at 3%, while the core rate dropped to a more than three-year low of 3.2%. Additionally, investors remain anxious about Iran’s potential retaliatory strike on Israel after Hamas was reported as unlikely to participate in a new round of talks on a Gaza ceasefire deal. However, lingering demand concerns limited extra gains. EIA data showed a surprising rise in US crude oil inventories, up by 1.357 million barrels last week (Figure 1), ending a six-week decline and defying expectations of a 2 million barrel drop.

Figure 1. WTI front month ($/barrel), US crude oil inventory (thousand barrels)

Conversely, gasoline and distillate stockpiles fell more than anticipated. The IEA report indicated that inventory declines will slow in the final quarter. Furthermore, OPEC cut its 2023 demand growth estimate by 135,000 bpd due to weak Chinese demand and lowered the 2025 growth forecast to 1.78 million bpd. Despite these factors, potential supply risks in the Middle East, particularly concerns over Iranian retaliation against Israel, added extra upward pressure in oil prices. From institutional investors’ perspective the outlook is somewhat bearish, taking into account that their net positions across the six contracts had fallen to the lowest since 2013, when records of these trades started. The outlook for the oil market is mixed, but in the near term downward movement may be the expected scenario for the time being.