By Giulia Petroni and Joe Hoppe
Here's a look at what happened in oil markets in the week of May 13-17 and what will be in focus in the days to come.
OVERVIEW:
Oil prices are on track for weekly gains, the first for Brent crude in three weeks, with bullish sentiment driven by a softening in the dollar and lower U.S. oil inventories than predicted. Brent crude currently trades around $83.6 a barrel, while West Texas Intermediate is at around $79.16 a barrel.
MACRO: The latest U.S. inflation data showed price pressures didn't get any worse, but the Federal Reserve will likely need to see more progress toward their 2% inflation objective before starting to lower interest rates later this year.
The CPI--a gauge of goods and service costs across the U.S. economy--rose 3.4% on year, in line with expectations, while core prices, which exclude volatile food and energy items, climbed 3.6% annually, the lowest increase since April 2021.
Earlier this week though, Labor Department data showed the U.S. producer-price index rose more than expected by 0.5% in April from the previous month, suggesting that inflation remains sticky.
Fed Chair Jerome Powell said the U.S. central bank awaits evidence of a slowdown in inflation to start lowering borrowing costs, and that at the moment it is unable to say whether or when it might be able to lower interest rates.
This month the fed held interest rates steady at their highest level in two decades, a bearish sign for oil as higher rates typically dampen demand for the commodity and make the U.S. dollar stronger, which in turn makes oil more expensive for buyers using other currencies.
GEOPOLITICAL RISKS: The decline in oil prices in previous weeks signals traders have significantly reduced the geopolitical risk premium in recent weeks, as oil supplies remain largely unaffected by the war between Gaza and Hamas.
SUPPLY AND DEMAND: Oil prices initially fell earlier this week after the International Energy Agency cut its forecast for oil-demand growth this year, citing weaker-than-expected gasoil consumption across developed countries. Global growth is now expected to be 1.1 million barrels a day from 1.2 million barrels a day previously. The forecast is still well below that of the Organization of the Petroleum Exporting Countries.
OPEC left its estimates for global oil-demand growth unchanged at 2.2 million barrels a day this year and 1.8 million barrels a day next year. It also reported a fall in crude output in April as the market waits for the cartel's next production policy move at its upcoming meeting in June.
On Wednesday, the Energy Information Administration reported U.S. commercial crude inventories declined for a second week in a row, falling 2.5 million barrels in the week ended May 10. This fall was also larger than the average analysts' forecast for a crude-supply decline of 500,000, according to a poll conducted by S&P Global Commodity Insights.
WHAT'S AHEAD: Next Wednesday will see the release of the Federal Reserve meeting minutes for May, with plenty of Fed officials scheduled to speak throughout the week. Traders will be watching closely for any hints on the potential timing and extent of U.S. interest-rate cuts, as lower rates are typically positive for oil markets, boosting the economy and therefore demand for the commodity.
The global flash Purchasing Managers' Index figures, a temperature check on growth across key economies, is due on Thursday.
Market focus is also on OPEC+'s next move at its June meeting, with most analysts now expecting the cartel and its allies to extend the previously announced voluntary output cuts of 2.2 million barrels a day in an effort to prop up falling prices. According to Commerzbank Research, OPEC+ would in fact risk a further price slide by announcing a gradual phasing out of the voluntary cuts.
Write to Giulia Petroni at giulia.petroni@wsj.com and Joe Hoppe at joseph.hoppe@wsj.com
(END) Dow Jones Newswires
05-17-24 1220ET
