Oil prices see 'oversold bounce' after recent losses as traders weigh a rise in U.S. supply

By Myra P. Saefong and William Watts

Saudi Aramco to lower its selling price for Arab Light crude to Asia in July

Oil futures settled higher on Wednesday, with prices recouping a portion of their losses from a five-session decline.

Official U.S. data revealing weekly gains in commercial crude, gasoline and distillate inventories, however, helped to limit gains.

Price moves

West Texas Intermediate crude CL00 for July delivery CL.1 CLN24 rose 82 cents, or 1.1%, to settle at $74.07 a barrel on the New York Mercantile Exchange.August Brent crude BRN00 BRNQ24, the global benchmark, added 89 cents, or 1.2%, at $78.41 a barrel on ICE Futures Europe. On Tuesday, both Brent and WTI futures tallied a fifth straight session loss.July gasoline RBN24 edged up by 0.2% to $2.35 a gallon, while July heating oil HON24 tacked on 0.7% to $2.30 a gallon.Natural gas for July delivery NGN24 settled at $2.76 per million British thermal units, up 6.6%, after losing 6.2% Tuesday.

Market drivers

Oil prices staged an "oversold bounce after finishing lower for the fifth consecutive day on Tuesday," said Fawad Razaqzada, market analyst at City Index and FOREX.com.

"It remains to be seen whether this recovery will last, given ongoing concerns over demand and over the OPEC+ decision to eventually phase out voluntary output cuts at a time when non-OPEC supply is on the rise," he told MarketWatch.

However, these concerns "might be priced in by now, which should mean that prices could find some support especially now that we are in the middle of the U.S. driving season, when demand tends to pick up," Razaqzada added.

Read: Plummeting oil, diesel, and copper prices signal economic stress. Here's why.

Separately, however, state-owned Saudi Aramco (SA:2222) said it will reduce its selling price for Arab Light crude to Asia in July, a move that will likely raise concerns over weakness in demand from its Asian customers.

Data from the Energy Information Administration released Wednesday, meanwhile, showed that finished motor-gasoline supplied, a proxy for demand, fell to 8.946 million barrels a day last week, from 9.148 mbd the week before.

The EIA also reported that U.S. commercial crude inventories rose by 1.2 million barrels for the week ended May 31.

On average, analysts had forecast a crude-supply decline of 2.8 million barrels, according to a poll conducted by S&P Global Commodity Insights. Late Tuesday, the American Petroleum Institute reported a crude-inventory climb of 4.05 million barrels, according to a source citing the data.

The EIA report also showed weekly supply gains of 2.1 million barrels for gasoline and 3.2 million barrels for distillates. The S&P Global Commodity Insights survey called for inventory gains of 600,000 barrels for gasoline and 700,000 barrels for distillates.

U.S. oil production was unchanged at 13.1 million barrels per day in the latest week, the EIA said, while crude stocks at the Cushing, Okla., Nymex delivery hub rose by 800,000 barrels to 35.4 million barrels.

WTI and Brent closed Tuesday at their lowest since early February, extending losses seen after OPEC+ over the weekend announced a plan to begin unwinding a suite of voluntary production cuts totaling 2.2 million barrels a day over 12 months beginning in October, while also extending a program of group cuts totaling 3.66 mbd through the end of 2025.

See: Why oil's recent drop is not a recession signal - and good news for stocks

Also read: Why U.S. oil production isn't a huge threat to OPEC+ market share anymore

Meanwhile, commodity strategists at ING argued that oil's recent slump in prices may have gone too far.

"While the market has been disappointed that OPEC+ will gradually unwind cuts, it is important to remember that this is only from October. Our balance sheet continues to show a tightening in the oil market over the third quarter. Therefore, we believe the scale of the selloff at the front end of the forward curve is overdone," said strategists Warren Patterson and Ewa Manthey, in a note.

-Myra P. Saefong -William Watts

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06-05-24 1520ET

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