Oil futures saw a downturn on Thursday despite a larger-than-anticipated draw on US crude inventories last week, as concerns about demand growth and inflation continued to dominate market sentiment.
By 1850 GMT, front-month ICE Brent futures for July 2024 were trading at $82.04 per barrel, down from Wednesday’s close of $83.60 per barrel. The more actively traded August 2024 contract was at $82.01 per barrel. Meanwhile, July 2024 NYMEX WTI futures were at $78.01 per barrel, compared to Wednesday’s settle at $79.23 per barrel.
Initially, markets stabilized after the American Petroleum Institute reported a significant drop in crude stockpiles, down by 6.5 million barrels last week, surpassing expectations of a 2 million barrel decrease. The Cushing, Oklahoma storage hub, the delivery point for NYMEX WTI futures, saw a substantial reduction of 1.7 million barrels, following a 10-month high of over 36 million barrels the previous week.
Later, the US Energy Information Administration (EIA) reported a smaller decline in commercial crude oil inventories, down by 4.2 million barrels. However, gasoline stocks increased by 2 million barrels for the week ending May 24, keeping oil benchmarks in negative territory for the day.
Inflation concerns halted a robust rally from late last month. On Wednesday, prices fell nearly $3 per barrel from highs that had briefly pushed Brent above $85 per barrel. The front-month spread also narrowed to a multi-month low of under $0.10 per barrel.
Midweek market fluctuations were also driven by uncertainties surrounding demand growth. “There is much uncertainty around demand as the northern hemisphere heads into the traditional driving season. While US holiday trips are expected to hit a post-COVID high, improved fuel efficiency and EVs could see oil demand remain soft,” said ANZ commodity strategist Daniel Hynes. He added that this might be partially offset by rising air travel.
Adding to market concerns, Germany’s year-on-year inflation rate came in at 2.8% on Wednesday, exceeding expectations. Although the European Central Bank (ECB) is expected to implement its first rate cut at its June meeting, higher inflation could jeopardize hopes for consecutive cuts.
