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From April 30 to May 3, WTI crude oil recorded a decline of 6.85%, Brent crude oil recorded a decline of 5.95%, and oil prices fell to a nearly two-month low. On May 3, the main contract of WTI crude oil futures in the United States settled at $78.11 per barrel, and the main contract of Brent crude oil futures settled at $82.96 per barrel. This is mainly due to the sharp increase in U.S. crude oil inventories, coupled with the expectation of a ceasefire in the Middle East, which has eased geopolitical tensions.
EIA: U.S. crude oil inventories rose sharply
The U.S. Energy Information Administration (EIA) released a report last Wednesday showing a larger-than-expected increase in U.S. crude inventories in the week ended April 26. U.S. crude inventories rose by 7.3 million barrels to 460.9 million barrels, the highest since June 2023, the data showed. The increase was the largest since the week of Feb. 9, 2024, compared to analysts' expectations of a 1.1 million barrel decline.
The main reason for the sharp increase in crude oil inventories is the marked decline in US exports, which also points to weak global oil demand. At the same time, the decline in the capacity utilization rate of refineries in the United States and the low operating rate of refineries are also important reasons for the accumulation of crude oil. In addition, refined product inventories recorded an increase of 300,000 barrels, indicating that the seasonal peak season in North America is not significant, and the demand for refined products has not heated up as expected.
Ceasefire talks continue and geopolitical tensions ease
The likelihood of a ceasefire agreement between Israel and Hamas, pushed by the United States and Egypt, has increased. The Israeli side sent a delegation to Egypt on 30 June to participate in the ceasefire talks with the Palestinian side. On the evening of May 3, local time, the Egyptian security department reported that a delegation from Hamas would arrive in Cairo on the 4th to negotiate issues related to the ceasefire plan. At present, the market is still paying attention to the dynamics of the Kazakh-Israeli negotiations.
Overall, tensions in the Middle East have eased, with international pressure raising hopes for a ceasefire between Israel and Hamas, and a significant pullback in oil prices due to lower risk premiums.
Macro: Fed rate cut expectations lower fuel demand is suppressed
On 1 May, the US Federal Reserve concluded its two-day monetary policy meeting, announcing that it would keep the target range for the federal funds rate unchanged at 5.25% to 5.5% and slow the pace of balance sheet reduction since June. This is the sixth consecutive meeting of the Federal Reserve to keep interest rates unchanged since last September.
The Fed said it aims to return to its 2% inflation target, given that inflation is still elevated, and that inflation is still some way from its target. The slim hope of a rate cut has further weighed on fuel demand expectations and weighed on oil prices.
U.S. non-farm payrolls data showed U.S. job growth slowed more than expected in April. Specifically, the U.S. non-farm payrolls increased by 175,000 in April. The increase in March was revised upward to 315,000, compared with 303,000 in the previous month. Economists had expected 243,000 jobs to be added in April. The U.S. unemployment rate remained below 4% for the 27th consecutive month. Although the non-farm payrolls data was less than expected and showed a slowdown trend, the US economy is still strong, and investors are widely betting that the first rate cut will not be ushered in until September at the earliest.
Outlook for the market
Xue Jinlei, a crude oil analyst at the business community, believes that the recent decline in oil prices is mainly due to the concentrated release of negative news in the market, which has suppressed the risk premium of crude oil. Oil prices will return to fundamentals in the later period, the supply and demand game is still dominant, before the Middle East ceasefire agreement is formally reached, the possibility of a deep correction in oil prices is not large, at the same time, OPEC will hold a ministerial meeting on June 1, if oil prices fall too much, do not rule out the possibility of OPEC deepening production cuts. On the demand side, the peak summer driving season in the United States will stimulate gasoline demand. On the whole, crude oil is under pressure in the short term, and in the medium and long term, it is not ruled out that it will regain lost ground and continue to look for the possibility of upward space.