Oil snaps 3-day winning streak, tumbles 2% on weak US demand; Brent fell 6% in May ahead of the OPEC+ verdict

Crude oil prices snapped a three-day winning streak and tumbled nearly two percent on Thursday, May 30, after the U.S. government reported weak demand for the fuel and a surprise increase in gasoline and distillate stockpiles. The downtrend comes ahead of the decision on production policy by the Organization of the Petroleum Exporting Countries and its allies (OPEC+), which is scheduled for June 2.

Brent crude futures were down $1.25, or 1.5%, at $82.35 a barrel. U.S. West Texas Intermediate crude futures were down $1.15, or 1.5 percent, at $78.08 a barrel. Turning to domestic prices, crude oil futures last traded 2.05% lower at ₹6,488 per barrel on the Multi Commodity Exchange (MCX).

Both crude oil benchmarks headed for monthly losses, with Brent futures on course to fall more than six percent from last month, while WTI was poised for a drop of more than 4.5 percent, according to the news agency Reuters.

Read also: Oil prices hit 4-week high ahead of OPEC+ policy verdict, US demand hopes; Brent highest since May 1 at $85/bbl

What is weighing on the price of crude oil?

– U.S. crude oil inventories fell more than expected last week as the country’s refineries rose to their highest utilization rates in more than nine months, according to the Energy Information Administration (EIA). There was a surprise build in gasoline and distillate fuel stocks as demand fell even as production rose.

– Crude oil inventories fell by 4.16 million barrels in the week ended May 24, EIA data showed. Gasoline and distillate stocks were together about 4.57 million barrels higher. Analysts said weakness in gasoline markets continued to drag down the rest of the oil complex.

-Analysts expected the US Memorial Day holiday on May 27 — the start of the US summer driving season, to boost fuel demand. However, the EIA’s measure of gasoline demand fell about two percent from the previous week to 9.15 million barrels per day.

-Ongoing pressures on oil prices, investors’ appetite for risk was dampened by the prospect of delayed monetary easing in the US and Europe, analysts at financial brokerage ActivTrades said. “Trading in fear” is dominating financial markets ahead of Friday’s US consumer price index data, analysts said.

Oil investors are also cautious ahead of this weekend’s OPEC meeting. The producer group will decide whether to extend, deepen or cancel supply cuts. Weak fuel demand and rising global oil inventories could help OPEC+ maintain supply cuts when they meet on Sunday, according to OPEC delegates.

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Where are prices headed?

Hawkish Fed rhetoric has boosted the dollar and yields, keeping risk appetite limited. OPEC is expected to extend production cuts into the second half of 2024, according to Kaynat Chainwala – Senior Manager, Commodities Research – Kotak Securities.

“Oil prices are weighed by sales seen across the basket of commodities. However, prices may see some buying support at lower levels. Technically, prices are expected to find support around 6,540, while on the upside, resistance is seen at 6,670/ 6,740,” said Pranav Mer, Vice President, EBG – Commodity and Currency Research, JM Financial Services.