The Week in Oil: Signs of Market Tightening, Demand Optimism Boosts Sentiment

By Giulia Petroni

Here's a look at what happened in oil markets in the week of June 17-21 and what the focus will be in the days to come.

OVERVIEW: Oil prices are on course for a solid weekly gain, supported by signs of a tighter market in the third quarter amid OPEC+ output cuts and a pick up in travel demand over the summer, as well as heightened geopolitical tensions in the Middle East. Brent crude, the international oil benchmark, currently trades around $85 a barrel, while the U.S. oil gauge West Texas Intermediate is at around $81 a barrel.

MACRO: The global monetary-policy easing cycle is continuing, with Switzerland joining the European Central Bank, Canada and Sweden in lowering interest rates this year. Yet, the impact on commodities could be muted until the U.S. kicks off its own cycle, according to analysts. New York Federal Reserve President John Williams said in an interview on news channel Fox Business this week that the U.S. economy is "moving in the right direction," but that any decisions regarding rate cuts this year depend on incoming economic data. Meanwhile, the latest U.S. PMI data showed business activity picked up pace in the U.S., reaching its highest level in more than two years.

GEOPOLITICAL RISKS: A resurgence in geopolitical tensions took center stage this week, leaving markets on edge despite no material disruption to oil supplies yet. Tensions between Israel and Iran-backed militia Hezbollah are rising, increasing the risks of a broader conflict in the region. Meanwhile, Houthi rebel attacks against ships in the Red Sea have recently intensified.

SUPPLY AND DEMAND: The week started off with mixed data from top consumer China. The country's retail sales--a key metric of consumer spending--rose 3.7% from a year earlier in May, while industrial output expanded 5.6% against expectations of 5.9% growth. The latest figures also showed that China boosted crude oil stockpiles in the first five months of the year, while oil imports declined--a bearish signal for the demand outlook.

The Energy Information Administration's weekly U.S. inventories report was instead bullish for prices, showing crude oil stocks fell by 2.5 million barrels to 457.1 million barrels in the week ended June 14, while gasoline inventories saw a withdrawal for the first time since May 17, down 2.3 million barrels to 231.2 million barrels.

WHAT'S AHEAD: At a macro level, traders will be focusing on U.S. Consumer Confidence and the Personal Consumption Expenditures Price Index data next week for more clues on the path of inflation. Market participants will also closely watch for U.S. inventories figures for insights on demand trends in the U.S., as well as geopolitical developments in the Middle East.

Write to Giulia Petroni at giulia.petroni@wsj.com

(END) Dow Jones Newswires

June 21, 2024 12:20 ET (16:20 GMT)

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