Crude Oil Prices Slide as US Stocks Surge

Crude oil prices declined in early trading on Thursday for the third straight session following the release of data indicating an unexpected and substantial increase in US crude stocks last week. This unexpected build raised concerns of an oversupply in the market, compounded by signs of weaker demand from China.

Brent crude futures for August delivery fell by 40 cents, or 0.6%, to $72.20 per barrel. Meanwhile, US West Texas Intermediate (WTI) crude dipped by 39 cents, or 0.6%, to $67.70 per barrel. Both benchmarks experienced declines of over $1 on the previous day, adding to the downward momentum.

US Crude Stocks Surprisingly Rise, Contrary to Expectations

According to market sources citing data from the API, US crude oil rigs unexpectedly rose by approximately 5.2 million barrels last week. This figure starkly contrasts with the Reuters poll estimates, which projected a drawdown of 1.4 million barrels.

In an additional bearish signal, gasoline inventories also recorded an unexpected build of around 1.9 million barrels during the week ended May 26. This data diverged from estimates of a drawdown of approximately 500,000 barrels, intensifying concerns about excess supply in the market.

China’s Weaker Manufacturing Activity Raises Demand Worries

The market’s apprehension about oil demand was amplified by Chinese data revealing a faster-than-expected contraction in manufacturing activity during May. This development, impacting the world’s second-largest oil consumer, further fueled concerns about the global demand outlook.

Market participants are now eagerly awaiting the upcoming June 4 meeting of OPEC+ to assess potential decisions on further production cuts. Mixed signals have been observed thus far regarding the likelihood of such cuts. Furthermore, the unexpectedly strong labor market data on Wednesday heightened worries that the Federal Reserve might raise interest rates in June. This potential development could diminish fuel demand in the United States, the world’s largest oil consumer.

Progress on US Debt Bill and Rate Hike Pause Propel Oil Prices

Domestic heating oil prices rebounded on Thursday as positive developments unfolded, including a potential pause in US interest rate hikes and the successful passage of a crucial vote on the US debt ceiling bill. These events restored optimism about the future growth of fuel demand in the world’s largest oil consumer.

Brent crude futures for August rose by 31 cents, or 0.4%, to $72.91 per barrel. At the same time, US West Texas Intermediate (WTI) crude gained 21 cents, or 0.3%, reaching $68.30 per barrel. The reversal in sentiment comes after two consecutive days of declines, with market analysts suggesting that heavy fuel oil markets may have been oversold.

Concerns Remain as China’s Demand and US Inventory Levels Weigh on Market

Despite the rebound, the market remains cautious. Mixed demand indications from China and the rise in US crude inventories keep the investors in tension. Uncertainty lingers among investors, who have recently displayed pragmatism and risk aversion.

The market focus remains on the forthcoming OPEC+ meeting scheduled for June 4, where discussions on production cuts will take place. Additionally, the release of official government data on US crude stocks, delayed by a US holiday earlier this week, will provide further insights into inventory levels and market dynamics.

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