- Data revealed that US crude inventories rose by 3.9 million barrels last week.
- Oil rallied in the previous session after reports of an escalation in geopolitical tensions.
- Traders are pricing in at least three Fed rate cuts before the year ends.
Oil prices eased on Thursday amid worries about oil demand and the rising risk of oversupply and a loose market. However, prices rose in the previous session as global tensions increased the risk of supply disruptions. Meanwhile, market participants are paying close attention to US economic data for clues on the outlook for Fed rate cuts.
Data revealed that US crude inventories rose by 3.9 million barrels last week. Meanwhile, economists had expected the report to show a draw of 1 million barrels. It pointed to weak demand in the US and weighed on prices.
At the same time, market participants were grappling with the likelihood of oversupply as the OPEC+ group plans more output increases. The group said on Sunday that it was planning to increase production in October. At the same time, the IEA reported that world oil supply would rise faster than expected this year due to the OPEC+ output increases. Oversupply would mean a looser market and a decline in oil prices.
Oil futures (Source: ICE, Nymex)
However, oil rallied in the previous session after reports of an escalation in tensions in Ukraine and the Middle East. Russia’s drone attacks in Ukraine went beyond its borders and entered Poland, only to be shot down. The move increased the chances of more sanctions.
At the same time, a separate report revealed that Israel had used airstrikes on Qatar to try to assassinate Hamas leaders. If these conflicts grow, there is a chance that the oil supply will be disrupted, tightening the market.
“Our market is torn between perceived supply shortage due to the rise in tension in the Middle East and Ukraine and actual oversupply as reflected in rising OPEC+ production and swelling stocks implied in the weekly and monthly EIA reports,” PVM Oil Associates analyst Tamas Varga said.
Elsewhere, market participants have been watching recent US data, which has supported expectations for a Fed rate cut. Employment figures last week pointed to a faster-than-expected slowdown in the labor market. As a result, traders are pricing in at least three Fed rate cuts before the year ends. Meanwhile, data on Thursday revealed that consumer inflation accelerated more than expected monthly, slightly easing rate cut bets.
