OPEC+ Gathering Sets the Stage
Typically, ahead of every OPEC+ meeting, market participants exhibit anticipatory behavior. This week was no different. The crude oil price witnessed a sharp 4% surge on Thursday, nullifying the 7% loss from the previous three days. Traders were getting ready for the possibility that OPEC+ might declare another cut in production during their upcoming weekend conference.
Saudi Arabia's Role in Oil Price Dynamics
There's only one plausible reason for this occurrence - a discontented Saudi Arabia aiming to combat short-sellers and elevate oil prices to $80 per barrel or more at the earliest. This motive played a substantial role in the end-week resurgence of oil prices, irrespective of the gloomy weekly oil supply-demand report disclosed by the U.S. government.
US Macro Factors Contribute to Rally
Another driver was the extensive commodities rally sparked by the most significant one-day fall of the dollar since mid-March. This fall came after the U.S. debt ceiling agreement passed through Congress, a reasonable deal between Democratic President Joe Biden and his leading Republican opponent Kevin McCarthy to prevent an unparalleled U.S. debt default.
The US Crude Inventory Outlook
According to the Energy Information Administration's (EIA) Weekly Petroleum Status Report, the U.S. crude inventory balance increased by 4.5 million barrels on May 26. The market had anticipated an average draw of around 1.1M barrels for the past week.
Trends in Fuel and Distillate Stockpiles
The EIA reported mixed trends in the weekly reserves of gasoline and distillates. Automotive fuel gasoline, the U.S.'s primary fuel product, had a draw of 0.207M barrels. Meanwhile, distillate stockpiles, refined into heating oil, diesel for various vehicles, and jet fuel, saw a rise of 0.985M barrels.
New York and London Traded Crude Performance
New York-traded West Texas Intermediate (WTI) crude increased nearly 3%, settling at $70.10 per barrel. London-traded Brent crude, the global benchmark for oil, rose by 2.3% to $74.30.
Observations from the Experts
John Kilduff, a partner at New York energy hedge fund Again Capital, comments on this recent rebound: "Nothing in this weekly EIA report warrants the sort of price comeback we have today. However, hedging ahead of an OPEC meeting is completely legitimate, and that's what we're seeing today."
The OPEC+ Group's Influence on Oil Prices
OPEC+, which groups the 13-nation Saudi-led OPEC with ten other oil producers guided by Russia, is pivotal in global oil price dynamics. Despite the fears of additional production cuts, OPEC+ has had limited success in the last two months in driving crude prices up with output reductions.
The Impact of Past Production Cuts
The alliance's previous efforts to cut production have yet to yield lasting results. Crude prices only climbed for two weeks after the alliance announced a 1.7M-barrel-per-day cut in April, then turned lower over the next four weeks, wiping out roughly 15%. The earlier commitment to cut 2M barrels ended in a price drop to 15-month lows in March.