May 2 2024: Following three days of decline, oil prices showed signs of recovery on Thursday amid speculation that the United States, the largest global consumer of crude oil, might initiate restocking its strategic reserve. This potential move is seen as a measure to stabilize prices, particularly after crude prices fell by over 3% on Wednesday, reaching a seven-week low. The decline was attributed to the decision by the U.S. Federal Reserve to maintain interest rates, which raised concerns about economic growth and its impact on oil demand.
On Thursday, Brent crude futures for July climbed by 0.7% to $84.02 per barrel, while U.S. West Texas Intermediate (WTI) crude for June saw a similar rise, reaching $79.53 per barrel, up by 0.7%.
Hiroyuki Kikukawa, president of NS Trading, commented on the market dynamics, stating, “The oil market was supported by speculation that if WTI falls below $79, the U.S. will move to build up its strategic reserves.”
In addition to market speculation, geopolitical tensions in the Middle East also influenced market sentiments. Hopes for a ceasefire agreement between Israel and Hamas persisted, although uncertainties remained as Israeli Prime Minister Benjamin Netanyahu remained committed to a military assault on Gaza despite warnings.
The unexpected rise in crude inventories, as reported by the U.S. Energy Information Administration (EIA), added further pressure on oil prices. Crude inventories surged by 7.3 million barrels, signaling potential challenges in demand-supply dynamics.
While the Fed’s decision to maintain interest rates and potential future rate cuts may impact economic growth and oil demand, ongoing supply cuts by OPEC and its allies, collectively known as OPEC+, are expected to provide some support to prices. However, analysts caution that a significant surge in oil prices, particularly in the range of $90-$100, could prompt OPEC+ to consider easing production cuts, adding a level of uncertainty to the market outlook.