The oil market saw a slight decline in prices on Wednesday due to a combination of factors, including decreased worries over conflict in the Middle East and slowing business activity in the world’s largest oil consumer. However, a drop in U.S. crude oil inventories helped limit these losses.
Brent crude futures fell 27 cents to $88.15 a barrel by 11:30 a.m. EDT, while U.S. West Texas Intermediate crude futures dropped 38 cents to $82.98. These losses were partially due to a reversal of some of Brent’s earlier gains in the week, which were driven by a weaker U.S. dollar and other factors such as high crude exports from the United States and lower business activity in Europe and Asia.
Tim Snyder, an economist at Matador Economics, noted that the fundamentals suggested a calming down in the Middle East, potentially removing $5-10 a barrel from the market in the coming months. The large crude draw was due to very high crude exports from the United States, although preliminary tanker tracking data showed lower exports than expected. UBS analyst Giovanni Staunovo pointed out that this was because of strong demand for refined products from China and India, which meant that more oil had to be imported into these countries even though their economies are slowing down slightly compared to last year’s pace of growth.
The Composite PMI Output Index fell to 50.9 this month from 52.1 in March, indicating that global economic activity is still cooling down despite some improvements in certain sectors such as manufacturing and services.
The possibility of U.S interest rate cuts could stimulate economic growth and increase demand for oil, but concerns about geopolitical tension between Israel and Hamas continue to escalate with heavy shelling reported on Tuesday.
Sources indicated that Israel is preparing to evacuate Rafah ahead of an expected assault on the city by Hamas militants.
Overall, while there have been some positive signs for oil prices recently due to weaker currencies and falling business activity, there are still many uncertainties about how long these trends will persist or if they will reverse course at any point soon.
It is worth noting that while Brent fell slightly on Wednesday it remains above its lows of earlier this year when it dropped below $60 per barrel following OPEC’s decision not to cut production further.