- WTI holds breadth above $80.00 with US core PCE inflation in focus.
- Unexpected Oil buildup in the US intensified demand concerns.
- Israel prepares for massive damage in Lebanon if Hezbollah launches war.
West Texas Intermediate (WTI), futures on NYMEX, remain steady above the psychological support of $80.00 in Thursday’s European session. The upside in the Oil price has been restricted by growing demand concerns as the United States (US) Energy Information Administration (EIA) unexpectedly reported a significant buildup of inventories for the week ending June 21. While the downside remains favored amid caution that Middle East tensions would expand from Gaza to Lebanon.
On Wednesday, the US EIA reported Oil stockpiles at 3.59 million barrels. Economists expected a drawdown at a faster pace by 3.0 million barrels from the former release of 2.55 million barrels. This has raised concerns over the Oil consumption in worlds’ largest nation. Investors worry that maintenance of a restrictive interest rate framework by the Federal Reserve (Fed) from a longer period has deepened household crisis, which has resulted in poor demand prospects.
Going forward, investors will focus on the United States (US) core Personal Consumption Expenditure price index (PCE) data for May, which will be published on Friday. The core PCE inflation data, a Federal Reserve’s (Fed) preferred inflation measure, will provide cues bout when the rate-cutting cycle will be kicked-off.
The US core PCE inflation data is estimated to have grown at a slower pace of 0.1% against 0.2% in April month-on-month. Annually, the underlying inflation is projected to have decelerated to 2.6% from the former release of 2.8%.
On the geopolitical front, Israeli Defense Minister Yoav Gallant warned of a massacre in Lebanon if Hezbollah launches a war. Investors worry that the spread of war from Gaza to Lebanon would disrupt the Oil supply chain.
Brent Crude Oil FAQs
Brent Crude Oil is a type of Crude Oil found in the North Sea that is used as a benchmark for international Oil prices. It is considered ‘light’ and ‘sweet’ because of its high gravity and low sulfur content, making it easier to refine into gasoline and other high-value products. Brent Crude Oil serves as a reference price for approximately two-thirds of the world's internationally traded Oil supplies. Its popularity rests on its availability and stability: the North Sea region has well-established infrastructure for Oil production and transportation, ensuring a reliable and consistent supply.
Like all assets supply and demand are the key drivers of Brent Crude Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of Brent Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of Brent Crude Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 Oil producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact Brent Crude Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
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