Oil Prices Rebound on US Strategic Reserve Speculation, but US Inventory Build and Middle East Ceasefire Uncertainty Cap Gains
Oil prices rose on Thursday, recovering from three days of losses, due to expectations that the US may start refilling its strategic petroleum reserve.
This came after a 3.3% drop in prices on Wednesday due to the Federal Reserve keeping interest rates steady and signs of a potential Israel-Hamas ceasefire.
Additionally, an unexpected increase in US crude inventories added to the downward pressure on prices.
Brent crude futures for July rose 0.7% to $84.02 a barrel, while US WTI crude for June climbed 0.7% to $79.53 a barrel.
The oil market is being supported by the possibility that the US will replenish its Strategic Petroleum Reserve if West Texas Intermediate (WTI) falls below $79 a barrel.
The US aims to buy back oil at or below this price.
In the Middle East, there are expectations of a ceasefire agreement between Israel and Hamas, but Israeli Prime Minister Benjamin Netanyahu has vowed to go ahead with an assault on Rafah despite international opposition.
With the impact of US crude stock-building and the Federal Reserve's indication of higher interest rates almost fully priced in, the outcome of the Gaza talks is expected to be the next focus for the oil market.
The text discusses the expectation of a continued decrease in crude oil prices due to optimism over a ceasefire and rising crude inventories.
The US Energy Information Administration reported a larger-than-expected increase in crude inventories to a record high.
The US Federal Reserve kept interest rates unchanged but expressed concerns over recent inflation readings, which could delay planned rate cuts and slow economic growth.
However, supply reductions by OPEC+ will continue to support oil prices.
Citi Research analysts predict that OPEC+ will maintain output cuts throughout the second half of 2021 during their June 1 meeting.
However, if oil prices rise to a bullish range of $90-$100 or more, OPEC+ is expected to ease the cuts, potentially creating a soft ceiling for oil prices.