WTI Crude Prices Reflect Market Concerns
West Texas Intermediate (WTI) crude futures closed at $60.79 per barrel on Friday, down $0.74, or -1.20% for the week. This represents the second consecutive weekly decline, guided by broad concern regarding weakening demand in major economies and uncertainty over forthcoming OPEC+ production decisions. Despite a larger-than-anticipated drop in U.S. crude and gasoline inventories, the prevailing sentiment in the market remains bearish, with traders exercising caution ahead of the crucial June 2 OPEC+ meeting.
U.S. Inventory Trends
The U.S. commercial crude oil inventories witnessed a significant decrease of 2.8 million barrels for the week ending May 24, totaling 440.4 million barrels, according to data from the EIA. This decline significantly surpassed the forecasted reduction of 600,000 barrels and positioned overall inventories 6% below the five-year seasonal average. Despite this substantial drop, reactions in oil futures were muted as the market continues to prioritize global demand indicators rather than domestic stock fluctuations.
Meanwhile, gasoline inventories fell by 2.4 million barrels to 223.1 million barrels, coinciding with implied demand increasing to 9.5 million barrels per day, up from 8.7 million the previous week. This increase aligns with traditional patterns observed around the Memorial Day holiday, marking the commencement of the U.S. driving season. However, despite these drawdowns, average retail gasoline prices were recorded at $3.17 per gallon, which is 11% lower than the corresponding week last year, indicative of the absence of bullish momentum in the refined products market.
Impact of Currency Fluctuations
The U.S. Dollar Index settled at 99.443 on May 30, appreciating by 0.339 points or 0.34% compared to the previous week. The index peaked at 100.540 during the week before slightly retreating. This strengthened dollar added pressures on oil prices, making crude more expensive for international buyers, thus contributing to the bearish sentiment in the market.
International Manufacturing Indicators
Further compounding market concerns, China’s manufacturing PMI rose marginally to 49.5 in May from 49.0 in April but remained below the key 50-level, indicating continuous contraction for two months. Similarly, the Eurozone's HCOB composite PMI fell to 49.5 from 50.4 in April, signaling a contraction in private sector activity primarily driven by a slowdown in the service sector. Such figures reinforce worries that major economies are failing to consume oil at a sufficient rate to sustain current supply levels.
Upcoming OPEC+ Meeting and Market Sentiment
Attention now turns to the OPEC+ meeting on June 2, where the group is anticipated to deliberate on whether to begin unwinding voluntary production cuts. There is a proposed increase of 411,000 barrels per day for July under consideration. Analysts indicate that if demand trends remain feeble, a confirmed production hike could drive WTI crude prices into the range of $54.83 to $54.01. As traders adopt a cautious stance, they await clarification on whether OPEC+ will prioritize market share or maintain price stability.
Market Outlook
The market undeniably leans towards a bearish outlook. Even with the anticipated increase in U.S. demand during the holiday weekend and more favorable inventory data, market sentiment remains stagnant. Given the robust dollar, unfavorable manufacturing signals from China and Europe, along with the potential for increased OPEC+ supply, oil prices could face additional downward pressure in the near term.
Unless OPEC+ communicates a production hold or there is a notable improvement in demand indicators, WTI crude is likely to explore support at $59.20 in upcoming sessions. Should this support level falter, it could pave the way for a further decline into the $54.83 to $54.01 range. Conversely, a positive pivot at $62.59 could trigger a rebound, with a secondary pivot point at $64.40.
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