Oil, fundamental analysis
New week, same market volatility.
Last week’s precipitous fall in oil prices, tied to the US tariff announcements, carried over into this week only to slightly rebound at week’s end. A lower global demand forecast, a build in crude stocks and OPEC+ plans to increase output May 1st all amounted to “piling-on” to an already bearish marketplace. The only bullish turns occurred mid-week on the tariff delay as well as reported draws in refined product inventories. WTI’s High for the week was Monday’s $63.90/bbl with the Low of $55.12 printing early Wednesday. It was the lowest price since September 2021 and a level that a recent Dallas Fed survey indicated was not profitable for the industry.
In an almost identical pattern, Brent crude saw its weekly High of $67.75/bbl occur on Monday while the Low was Wednesday’s $58.40, which was the first time in 4 years that Brent traded below $62. The Brent/WTI spread now stands at ($3.25). Both grades settled slightly lower week-on-week.
Plummeting prices got a brief reprieve late Wednesday as President Trump announced a 90-day delay on the new tariff implementations for countries other than China. That exclusion has led to a game of tariff “tit-for-tat” between the two superpowers. Even though the delay sparked a rally in equity and commodity prices, traders focused on the temporary nature of the reprieve which only delays the uncertainty surrounding the impact of the tariffs. As a result, the net effect on prices this week was minimal.
The EIA has reduced its global crude demand forecast for this year to 103.6 million b/d from 104.5 million b/d. The agency cited slowing economic growth due to tariff implementation as well as the rolling-out of OPEC+ output increases. Meanwhile, the OPEC+ group is going head with its planned production increase of 411,000 b/d May 1 despite the considerably lower prices. Analysts believe the coalition wishes to regain lost market share and, with falling prices, they need to improve their position now.
The Iraqi Oil Ministry has reiterated its goal to achieve a production target of 7.0 million b/d within the next 5 years while Chinese exploration and production firms dominate the oil and gas industry there. Meanwhile in Oman, direct US/Iran talks will take place Saturday. Prior announcements of “progress” in these negotiations have had a bearish impact on global crude prices.
The Energy Information Administration’s (EIA) Weekly Petroleum Status Report indicated that both commercial crude oil inventories and the Strategic Petroleum Reserve increased while crude production was 13.5 million b/d, down slightly from the prior week’s 13.6.
There was some positive economic news this week as the CPI and PPI both came in lower-than-expected. Inflation unexpectedly dipped by 0.1% last month, which was the first such decline in 5 years and was largely the result of lower energy prices. The 2.4% annualized increase compares with February’s +2.8%. However, food prices continued to rise. The Producer Price Index fell last month by the most since 2023, dropping 0.4% from February compared with forecasts of +0.2% with lower energy prices seen as the main reason. The PPI is actually the Federal Reserve’s preferred indicator of inflation. On the flip side, consumer sentiment fell to 50.8% from 57% the prior month and is nearing a 3-year low as inflations worries are at their highest level measured since 1981. Claims for unemployment benefits rose only slightly on the week. All 3 major US stock indexes rose late week to post small gains but are far from where they were pre-tariff implementation. The USD ended lower week-on-week which is providing some support for oil prices.
