June 27 2024: Oil prices declined on Thursday, influenced by an unexpected increase in U.S. stockpiles, which raised concerns about a potential slowdown in demand from the world’s largest oil consumer. However, the decline was limited by worries that the ongoing Gaza conflict might escalate and disrupt Middle Eastern oil supplies.
As of 0635 GMT, Brent crude oil futures fell by 6 cents, or 0.1%, to $85.19 a barrel, while U.S. West Texas Intermediate crude futures dropped by 10 cents, or 0.1%, to $80.80 per barrel. Both benchmarks had settled slightly higher on Wednesday.
“An anticipated increase in U.S. crude oil and gasoline inventories is weighing on the market due to fears of weakening demand,” said Tsuyoshi Ueno, senior economist at NLI Research Institute. “But the market is in a tug-of-war situation, supported by concerns that an escalation in the conflict between Israel and Hezbollah could disrupt supply,” he added.
The U.S. Energy Information Administration (EIA) reported a 3.6 million barrel increase in the country’s crude oil stocks last week, contrary to analysts’ expectations of a 2.9 million-barrel drawdown. U.S. gasoline stocks also rose by 2.7 million barrels, while analysts had predicted a 1 million-barrel draw.
Product supplied for motor gasoline, a proxy for demand, decreased by about 417,000 barrels per day last week, totaling 8.97 million bpd. The four-week average demand is approximately 2% below last year’s levels.
“We believe the market’s upside is limited by weak U.S. gasoline demand despite the peak summer driving season,” said Emril Jamil, a senior analyst at LSEG Oil Research. Gasoline margins, indicated by the crack spread between gasoline and Brent/WTI, have trended lower since peaking in March at around $30 per barrel.
“This weakness is further compounded by sluggish diesel demand in both Europe and the U.S., with margins falling since last August,” Jamil added.
Meanwhile, fears of the Gaza conflict spreading to Lebanon have limited price declines. Cross-border tensions between Israel and Lebanon’s Hezbollah have been escalating, raising concerns about a potential full-scale war that could involve other regional powers, including major oil producer Iran.
Turkish President Tayyip Erdogan expressed solidarity with Lebanon and called for support from regional countries. On Wednesday, Israeli forces targeted several areas across Gaza, with residents reporting intense fighting overnight in Rafah, in the south of the Palestinian enclave.
