Oil futures: Crude rebounds from 5-month lows on US crude draw
Quantum Commodity Intelligence – Crude oil futures in European trading hours Wednesday rebounded from five-month lows on a larger-than-expected draw in US crude stocks, although Q1 oversupply concerns and uncertainty over the demand outlook for 2024 limited gains.
Front-month Feb24 ICE Brent futures were trading at $74.13/b (1748 GMT), compared to Tuesday's settle of $73.24/b, while the Feb24/Mar24 spread was around $0.26/b.
At the same time, Jan24 NYMEX WTI was trading $69.40/b versus Tuesday's settle of $68.61/b, while the front contango was $0.25/b.
US commercially-held crude oil stocks tumbled by over 4 million barrels for a second straight week to hit a one-month low of 440 million barrels, EIA data showed Wednesday, albeit still 6.5% higher than year-ago levels.
The weekly drop outstripped market expectations after market analysts polled by Reuters estimated the weekly fall at just 0.65 million barrels, while the API put out a 2.3-million-barrel fall overnight.
OPEC helped steady markets earlier in the day with an upbeat forecast for next year, with many expecting it to trim expectations for 2024 demand as a reason behind its recently announced voluntary production cuts.
OPEC sees demand growth of 2.25 million bpd next year, unchanged from its November forecast, and blamed "exaggerated concerns" about demand for a recent drop in prices.
Analysts said the huge post-OPEC+ selloff was largely driven by fund selling, with investors not convinced the announced cuts will be deep and lasting enough to counter supply growth and slowing demand next year.
"The pronounced price slide on the oil market following the OPEC+ meeting is also evident in the market positioning of speculative financial investors," said Carsten Fritsch of Commerzbank, noting net long positions in Brent and WTI hit a low last week that has not been seen since December 2012.
Headline prices have retreated around $13/b in just over two weeks, prompting some analysts to comment the market is close to finding support and could even have overshot to the downside.
"Much of the negative news is thus already likely to have been priced in by now, which argues against any continued price slide and suggests that prices should recover in the near future. Such a recovery could be sparked by the IEA's forecasts due to be published on Thursday if they do not confirm the current concerns about an oversupply in the first quarter of 2024," added Commerzbank's Fritsch.
Markets also wobbled after the US Energy Information Administration (EIA) trimmed its 2024 world oil demand growth outlook by 60,000 bpd to 1.34 million bpd while at the same time cutting its 2024 price outlook from $93/b to $83/b – although EIA forecasts tend to be reactionary rather than leading indicators.
Inflation
Oil markets were not helped by this month's US inflation figures and while the 3.1% versus year-ago levels were in line with expectations, it wasn't enough to raise hopes for an early rate softening.
"The November CPI report was relatively uneventful. Falling gasoline prices and modest food inflation restrained the headline CPI to just a 0.1% increase in the month. The November CPI data probably do not move the needle much for the FOMC this week," said Wells Fargo in its latest investor note.
"Looking through the month-to-month volatility, inflation continues to move back toward the Fed's 2% inflation target. That said, price growth remains far enough away from 2% that the central bank likely will not declare victory just yet," added the bank's report.
The Fed is set to decide on the interest rate later Wednesday and while another pause is widely expected, the Fed will likely also reiterate its 'higher for longer' rate stance.
