- Crude oil ticks up as US inventories saw a significant decline.
- The overall trend remains bearish as the Middle East tension eased.
- OPEC+ output increase poses a risk for further decline.
Crude oil recovered on Thursday, driven by a sharper decline in the US crude oil inventories and cautiously optimistic sentiment around the Middle East ceasefire.
Brent crude futures ticked up to $67 while WTI futures settled around $65. The upside came after the US EIA reported a 5.8 million barrels drawdown in commercial crude oil stocks, which is significant. The markets were expecting only a 1.2 million barrel decline.
This marks the fifth consecutive weekly decline in US crude oil inventories, indicating that refining activity and fuel consumption are increasing in the US. Gasoline inventory also fell by 1.2 million barrels, suggesting a strong demand. Some analysts point to sustained inventory decline as an indicator of continued demand for energy, despite an overall cautious sentiment.
Geopolitical factors are also dominating the markets. The ceasefire between Iran and Israel continues for now, and the investors are still cautious of its stability. The US President appreciated the end to hostilities and also hinted at further talks with Tehran about curbing the nuclear ambitions of Iran. Though President Trump reaffirmed that the US will maintain the maximum pressure on Iran, including restrictions on Iranian oil, he signaled lenience by allowing China to buy oil from Iran to aid post-conflict recovery. Such an act may increase oil supply and cap further gains.
Now, the primary attention of the markets has shifted to the OPEC+ to determine the broader production outlook. They hinted that a plan for a yearly output increase may be brought forward, which would be a significant policy shift. This can also influence the global oil demand. In Asia, crude oil imports surged to a 2.5-year high in June. However, analysts caution that this could be driven by lower oil prices and not a sustained recovery in demand.
Moreover, macroeconomic signals and regional supply chain disruptions may also influence the market sentiment. The sulfur market in the Middle East, which typically follows energy logistics, is bullish due to concerns about potential supply disruptions in the Hormuz Strait. In China, the Sulphur prices have soared amid higher crude oil prices and refinery turnarounds.
Overall, crude oil prices remain in a sensitive equilibrium, as strong US demand and lower inventories support the bullish outlook, but a looming output hike by OPEC+ could outweigh the buyers. The next move is likely to be dependent on the release of US Q1 GDP data, followed by the US Core PCE Index report, and, of course, developments in Middle East diplomacy.
