Oil Price Forecast / Update: Flat Trade Despite OPEC+ Output Cuts, API Inventory Declines Ahead of EIA Data

Highlights

• Stable oil prices amid economic concerns
• US crude inventories down more than expected
• Bullish sentiment remains after OPEC+ output cuts

Overview

Oil prices remained stable on Wednesday as the market weighed gloomy economic prospects against expectations of U.S. crude inventory declines and plans by OPEC+ producers to reduce output.

Brent crude futures fell 0.26% to $84.72 a barrel, while West Texas Intermediate (WTI) U.S. crude was down 0.25% to $80.51 a barrel.

However, weak economic data from the U.S. and China raised demand fears, and traders will be looking for cues on broader economic trends from U.S. non-farm payrolls data due later in the week.

US Crude Inventories Fall by Over 4 million Barrels, Beating Expectations

The American Petroleum Institute (API) reported that crude oil inventories in the United States fell by a large 4.346 million barrels in the week ended March 31, compared to analysts’ expectations of a smaller 1.8 million barrel draw. However, the total number of barrels of crude oil gained so far this year is still more than 49 million barrels. The official inventory report by the U.S. Energy Information Administration (EIA) is due later on Wednesday.

Oil Prices Stay Bullish after OPEC+ Cuts, Traders Eye Tighter Market

Bullish sentiment continued after voluntary cuts pledged by OPEC+ members, including Russia, which is still being digested by energy traders. Any news that suggests the oil market will remain even tighter is going to send prices even higher.

Gasoline, Distillate Inventories Drop, but Oil Prices Restrained by Sluggish Demand

Gasoline inventories fell by 3.970 million barrels, while distillate inventories fell by 3.693 million barrels. Inventories at Cushing, Oklahoma, decreased by 1.035 million barrels after falling 2.388 million barrels last week. However, the sluggish performance of middle distillates contracts has “acted as a brake on any attempt to push crude oil prices meaningfully higher.”

Russian Diesel Flows and Weak US Job Market Dampen Oil Price Growth

Russia’s record diesel flows to the Middle East in March have also weighed on the market, acting as a brake on any attempt to push crude oil prices higher.

Meanwhile, the U.S. job openings in February dropped to the lowest level in nearly two years, suggesting that the labor market was cooling, and traders will be looking for cues on broader economic trends from U.S. non-farm payrolls data due this week. Private sector hiring decelerated in March, flashing another potential sign that U.S. economic growth is heading for a sharp slowdown or recession.

Summary

In conclusion, while the market remains stable, there are concerns about healthy economic expansion as Chinese, euro zone and U.S. manufacturing activity slowed last month.

The ADP report serves as a precursor to Friday’s nonfarm payrolls report from the Labor Department. Though ADP can serve as an indicator of the broader jobs trend, the two numbers can differ substantially.

Economists surveyed by Dow Jones expect Friday’s report to show payroll growth of 238,000 in March and the unemployment rate holding at 3.6%.

Today’s Energy Information Administrative (EIA) weekly inventories report, due to be released at 14:30 GMT, is expected to show crude oil stockpiles fell 1.6 million barrels.

Technically, buyers have to drive June WTI crude oil over the Jan. 23 main top at $82.98 to extend the rally. A failure to do so could lead to a test of the major support area at $78.06 – $75.49.