Oil Drops With US Stockpiles and Middle East Tensions in Focus

By Bloomberg

May 08, 2024

image is BloomburgMedia_SD3Z4CDWLU6800_08-05-2024_07-05-23_638507232000000000.jpg

Oil pump jacks in Midland, Texas, US, on Thursday, March 2, 2023. Thousands of miles away from the turmoil on Wall Street, Midland, Texas that ranked No.1 in the US for inflation just over a year ago has since ceded that title – only to lay claim to a different one: the country’s pay-raise capital. Photographer: Sergio Flores/Bloomberg

(Bloomberg) -- Oil fell to the lowest level since mid-March, with a mildly bearish US stockpile report and tensions in the Middle East in focus.

Brent dipped below $83 a barrel after dropping intra-day to the lowest since March 13 on Tuesday, while West Texas Intermediate declined toward $78. Crude stockpiles at Cushing rose by more than 1 million barrels last week, based on an industry estimate, according to people familiar with the figures. The breakdown also showed higher nationwide holdings of gasoline and distillates. Official data come later Wednesday.

In the Middle East, Israel’s military edged into the Gazan city of Rafah, with a truce between the Jewish state and Hamas — designated a terrorist organization by the US and the European Union — still remaining elusive.

Oil has been on a downtrend since early April, posting losses in three of the past four weeks, with indicators from timespreads to processing margins pointing to a weaker outlook. Brent and WTI’s prompt spreads have narrowed to multi-month lows, suggesting that conditions are becoming less tight. In addition, profit margins of making fuels like diesel have also declined.

A stronger dollar is an added headwind as the commodity becomes more expensive for many investors. The US currency is on its third straight day of gains, according to a Bloomberg gauge, while oil’s breach below its 100-day moving average is also exacerbating the latest bout of price weakness.

While there’s weakness amid rising stockpiles and fading geopolitical threats, there’s “support coming from ongoing supply-side risks,” said Han Zhong Liang, an investment strategist at Standard Chartered Plc, citing factors including the June OPEC+ meeting and renewed curbs on Iranian and Venezuelan oil. “We think that markets are under-pricing these risks in the near term.”

The Organization of the Petroleum Exporting Countries is due to meet next month to assess supply policy after implementing production cuts over the first half of the year to support prices. Most traders expect that the curbs will be extended, possibly to the year-end, according to a Bloomberg survey.

By Yongchang Chin