Oil futures: Crude rebounds on CPI data after IEA trims demand outlook

Quantum Commodity Intelligence – Crude oil futures Wednesday were slightly higher following sharp intraday swings, as US inflation figures and oil inventory draws offset the IEA's bearish call to further trim demand growth.

Front-month Jul24 ICE Brent futures were trading at $82.82/b (1900 GMT), compared to the day's range of $81.05-$83.07/b and Tuesday's settle of $82.38/b, testing two-month lows. Market structure remains under pressure also with Jul24/Aug24 around +$0.40/b.

At the same time Jun24 NYMEX WTI was trading at $78.74/b versus the day's low of $76.70/b and Tuesday's settle of $78.02/b.

Data from the American Petroleum Institute revealed crude stockpiles dropped 3.1 million barrels last week, going against expectations for a build of around 1 million barrels, while gasoline stocks fell 1.27 million barrels, helping steady prices after markets tumbled in the previous session.

Industry data was followed up by weekly EIA government figures released Wednesday, which calculated US commercial crude stockpiles dropped 2.5 million barrels on the week, including a 340,000 barrel draw at Cushing.

Prices also gained early in the session after residents of Canada's Fort McMurray oil hub started evacuations as an "out of control" wildfire moved closer to the city in northern Alberta, in turn threatening segments of Canada's oil sands.

So far, production has continued unimpeded, but in 2023 almost 400,000 bpd of heavy crude production was shut in, while in 2016 around 1 million bpd was lost at the peak of the wildfire season.

But the modest rebound largely stalled in early European hours after the IEA further trimmed its growth outlook for this year to 1.1 million bpd, around half that of OPEC's much-more optimistic outlook. 

"The spring sell-off was most notable in middle distillate markets, as diesel and jet fuel cracks collapsed while the NYMEX ULSD front-month contract flipped into contango after years of backwardation," said the IEA report, adding poor industrial activity and another mild winter had sapped gasoil consumption this year, particularly in Europe .

Inflation

However, benchmarks moved back into small positive territory later in the session after US inflation came in slightly lower than forecasts. The headline CPI rose 0.3% in April, while the core CPI also increased 0.3%

Prices had sunk Tuesday after Federal Reserve Chair Jerome Powell effectively stamped out any lingering hopes of a June rate cut, saying that inflation is dropping at a slower pace than expected.

"We did not expect this to be a smooth road. But these [inflation figures] were higher than I think anybody expected," Powell said. "What that has told us is that we'll need to be patient and let restrictive policy do its work."

However, Powell reiterated that he does not expect the Federal Reserve to start hiking rates again.

"I don't think that it's likely, based on the data that we have, that the next move that we make would be a rate hike," he said. "I think it's more likely that we'll be at a place where we hold the policy rate where it is."

Meanwhile, North physical crude remains under pressure with the flagship Forties grade offered in Tuesday's MOC window at -$0.35/b to the underlying Dated Brent swap on a CIF Rotterdam basis, which is the equivalent of around -$1.50/b on a FOB basis.