Oil drops in early Wednesday trade
Oil dropped to nearly their lowest level since mid-March, as attention turned to a somewhat bearish report on US oil inventories and tensions in the Middle East, Bloomberg reported on Wednesday.
Brent slid below $83 per barrel, hitting its lowest point since March 13, while West Texas Intermediate (WTI) approached $77.
Reports indicated a rise of over 1 million barrels in crude stockpiles at Cushing last week, according to sources familiar with the data. Additionally, there were increases in national inventories of gasoline and distillates. Official data is expected later on Wednesday.
Oil prices have been declining since early April, with losses in three of the past four weeks. Various indicators, from time spreads to processing margins, suggest a dimmer outlook. The prompt spreads for Brent and WTI have narrowed to their lowest levels in months, indicating looser conditions. Furthermore, profit margins for producing fuels like diesel have also decreased.
A strengthening dollar is posing an additional challenge, as it makes the commodity more expensive for many investors. The US currency is on track for a third consecutive day of gains, according to a Bloomberg index. The breach of oil prices below their 100-day moving average is further exacerbating the current downward pressure.
Despite the increase in stockpiles and diminished geopolitical tensions, there are still factors providing some support, such as ongoing risks on the supply side. Han Zhong Liang, an investment strategist at Standard Chartered Plc, noted that markets may be underestimating these risks in the short term, citing upcoming events like the June Organisation of the Petroleum Exporting Countries (OPEC+) meeting and potential further restrictions on Iranian and Venezuelan oil.
OPEC+ is scheduled to convene next month to review its supply policy, following earlier production cuts in the first half of the year aimed at bolstering prices. Most traders anticipate an extension of these cuts, possibly through the end of the year, according to a Bloomberg survey.
