- Oil prices dropped over 1% after inventory data showed a surprise build in US diesel and gasoline stocks.
- OPEC+ is planning to increase output in July.
- Economists believe the US economy added 127,000 new jobs, down from the previous month.
Oil prices paused their decline from the previous session as market participants shifted their focus to the upcoming US nonfarm payrolls report. At the same time, tensions between Russia and Ukraine renewed worries about supply, supporting prices.
On Wednesday, oil prices dropped over 1% after inventory data showed a surprise build in US diesel and gasoline stocks. Gasoline inventories increased by 5.2 million barrels compared to estimates of a 600,00 increase. This pointed to weak demand last week. However, crude inventories fell by 4.3 million barrels, bigger than the estimate of a 1 million draw.
Apart from the poor inventory data, market participants also worried about oversupply. OPEC+ is planning to increase output in July. Already, the oil producers have increased output in May and June. Another hike will continue adding supply to the market. Meanwhile, experts have downgraded the outlook for oil demand this year due to Trump’s tariffs. The combination of oversupply and weak demand could result in a significant drop in oil prices.
However, the decline paused on Thursday as traders awaited the crucial US nonfarm payrolls report. It will show the state of the labor market, shaping the outlook for Fed rate cuts. Economists believe the economy added 127,000 new jobs, down from the previous reading of 177,000. Meanwhile, the unemployment rate might hold steady at 4.2%. A downbeat report would reflect the impacts of Trump’s tariffs. Moreover, it would pile pressure on the Fed to lower borrowing costs. A weak US economy means poor demand for oil in the short term. However, in the long run, it would lead to lower borrowing costs and stronger demand.
Recent figures have already shown signs of weakness. Private employment came in well below estimates at 37,000. It raised fears of more downbeat employment figures. Meanwhile, business activity in the manufacturing and services sectors contracted. More poor data will increase Fed rate cut expectations.
Oil also recovered amid supply worries. Tensions between Russia and Ukraine escalated, dimming hopes for a ceasefire deal. Initially, talks between Trump and the two leaders had raised hopes of an end to the war. However, the war continues, keeping a premium on oil.
