Price Action
- West Texas Intermediate crude for September delivery (CL.1, -1.07%) fell 81 cents, or 1%, to $78.82 a barrel on the New York Mercantile Exchange.
- September Brent crude (BRNU23, -1.05%), the global benchmark, was down 74 cents, or 0.9%, at $78.89 a barrel on ICE Futures Europe.
Market Drivers
Both WTI and Brent reached their highest levels since April 18th on Tuesday and have achieved four consecutive weekly gains. These gains are attributed to the expectation that the physical market will experience a deficit in the second half of the year. Notably, Saudi Arabia and Russia’s supply cuts have contributed to this positive outlook.
However, crude remains lower for the year as concerns about aggressive tightening by global central banks persist. Investors are cautious of a potential slowdown, although the expectation of an upcoming end to rate hikes has provided some reassurance. It is widely anticipated that the Federal Reserve will announce a quarter-point rate hike on Wednesday, marking the end of a cycle that began in March 2022.
Furthermore, investors will closely monitor official data on crude and product inventories.
U.S. Crude Inventories Rise, Gasoline Supplies Fall, and Distillate Stocks Increase
The American Petroleum Institute has reported that U.S. crude inventories increased by 1.3 million barrels last week. At the same time, gasoline supplies fell by 1 million barrels, while distillate stocks rose by 1.6 million barrels.
Official data from the Energy Information Administration will be released on Wednesday morning. Analysts surveyed by S&P Global Commodity Insights anticipate the report to show supply declines of 4.4 million barrels for crude, 2 million barrels for gasoline, and 2.3 million barrels for distillates.
However, traders are likely to pay attention to the implied gasoline demand data within the EIA report, which has displayed declines over the past two weeks.
Should this trend continue, it could indicate that consumers are tightening their spending habits, particularly in regards to travel and leisure activities. This observation was shared by analysts at Sevens Report Research in a Wednesday note.
They wrote, “Such a dynamic would be viewed as an early warning sign for a slowdown in growth as the consumer is the lifeblood of the U.S. economy. So again, today’s ‘gasoline supplied’ figure within the weekly EIA report will be a critical figure to watch for both the energy markets and the health of the economy more broadly.”