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WTI rises as balance sheet seen tighter in third quarter
Crude oil futures rose on Wednesday as traders bet on reduced supply later in the year. The Federal Reserve’s indication of just one interest rate cut this year and pessimistic data on US reserves limited gains.
The Department of Energy sees global demand increasing this year by 1.1 million barrels per day, or bpd, up from the previous forecast of 900,000 bpd. The increase in demand implies a supply deficit, with global production expected to increase by 800,000 bpd in 2024.
Oil prices rose nearly 2% earlier in the day but retreated after the U.S. reported a 3.7 million barrel increase in crude inventories last week, compared with analysts’ expectations for a draw of one million barrels.
Gasoline inventories rose by 2.6 million barrels, compared with 891,000 expected by analysts. Fuel demand increased by 94,000 bpd, to about nine million bpd in total. Average daily fuel demand has been tepid, or 1.5% lower, compared to the same period last year, despite the start of the summer driving season.
Oil fell further after the Federal Reserve indicated that only one interest rate cut is planned for this year, as opposed to a forecast of three cuts in March, citing “modest” progress in controlling inflation.
Here are Wednesday’s closing energy prices:
- West Texas Intermediate July contract: $78.50, up 60 cents, or 0.77%. Year to date, US oil has gained 9.5%.
- Brent August contract: US$82.60 per barrel, up 68 cents, or 0.83%. Year to date, the global benchmark index is ahead by 7.2%.
- RBOB gasoline July contract: US$2.39 per gallon, down 0.6%. Year-to-date, gasoline increased 13.8%.
- Natural gas July contract: US$3.04 per thousand cubic feet, down 2.68%. Year to date, gas rose 21%.
“In the near term, the oil market will likely tighten,” Martijn Rats, commodities strategist at Morgan Stanley, said in a note to clients. The investment bank forecasts a deficit of 1.2 million bpd in the third quarter, which could push Brent prices to $86 per barrel.
OPEC, meanwhile, maintained its demand growth forecast of 2.2 million bpd due to solid global economic growth of 2.8% this year. These predictions collided with a bearish outlook from the International Energy Agency, which sees demand weakening and supply increasing.
See the graph…
WTI x Brent
Citi analysts described recent price action as limited, with volatility near a decade low. The bank also expects a tight third quarter due to summer fuel demand, although it predicts planned OPEC+ production increases will create a “bear market” in late 2024 and 2025, with Brent falling to $60 per share. barrel.