Oil futures: Crude nudges higher despite build in US oil inventories

Quantum Commodity Intelligence – Crude oil futures Wednesday were edging higher as benchmarks looked for a support floor after sustaining heavy losses of up to 6% during the early part of the week.

Front month Aug24 ICE Brent futures were trading at $78.33/b (1815 GMT), compared to Tuesday's settle of $77.52/b and close to the intraday high of $78.33/b. 

At the same time Jul24 NYMEX WTI was trading at $74.03/b, versus Tuesday's settle of $73.25/b.

Markets had already been left reeling this week after what was perceived as confused messaging from OPEC over the weekend, with an extension to cuts announced for Q3 followed by an increase in Q4.

Prices initially came under further pressure Wednesday after data from the American Petroleum Institute revealed crude stockpiles increased a weighty 4 million/b last week, going against expectations for a draw of around 2 million/b.

Gasoline inventories also added 4 million/b, while distillates posted a build of 2 million/b for an overall net oil increase of 10 million barrels, according to API calculations.

Weekly EIA figures released later Wednesday had US commercial crude oil inventories up by a more modest 1.2 million/b, helping to steady crude markets, although gasoline stocks swelled by 2 million/b and distillates by 3.2 million/b in the week to 31 May.

Damage

But it was the OPEC+ plan to start raising output from October that did most of the damage so far this week, wiping around 6% off headline prices before staging a small recovery.

"The OPEC+ group agreed on Sunday to extend most of its output cuts into 2025 but left room for voluntary cuts to be gradually unwound as of October. This means that increased supply later this year would come at a time when demand is already showing signs of weakness," commented City Index analyst Fiona Cincotta.

Compliance is also a problem as initial surveys showed OPEC pumping above quota in May, once again led by Iraq despite its pledge to rein in output.

According to the Bloomberg survey, OPEC's number two producer pumped an average of 4.24 million bpd last month, some 290,000 bpd above its revised quota, which now includes additional reductions to compensate for overproduction in the first quarter.

But prices found some support by midweek after Energy Secretary Jennifer Granholm told Reuters that the US could step up the pace of replenishing the Strategic Petroleum Reserve with maintenance due to be completed by the end of the year.

Additionally, China's Caixin PMI Services index increased to 54.0 in May, up from April's 52.5, marking a seventeenth consecutive month of expansion and the highest reading since July 2023.