Oil Dips On Profit Taking, Persistent Bearish Sentiment

Yet, fundamentals still point to a robust second-half 2024: File Image/Pixabay

Profit taking was the strategy of crude trading on Friday, amid persistent gloom about fuel demand clashing with faint hopes of a central bank rate reduction, as well as concerns that geopolitical tensions will disrupt supplies.

Reflecting the inability to leave range bound status, Brent settled up a mere 2 cents to $86.41 per barrel, while West Texas Intermediate settled down 20 cents to $81.54.

Brent rose 0.02 percent for the week and WTI posted a 0.2 percent loss; however, both benchmarks gained about 6 percent for the month.

Analysts on Friday were still digesting the Energy Information Administration's disclosure this week of a 3.6 million barrel jump in the U.S.'s crude stocks last week, the highest climb in over three years, and U.S. gasoline stocks rising by 2.7 million barrels.

Phil Flynn, senior market analyst at Price Futures Group Inc., said, "The monthly report from the EIA suggested the gasoline demand was pretty poor; those numbers didn't really inspire more buying."

But thanks to the U.S. personal consumption expenditures price index reportedly falling flat in May, traders were inspired to price in a 64 percent chance of a first interest rate cut in September, up from 50 percent last month,  according to the CME FedWatch tool.

Yet, it wouldn't be a crude trading session without plenty of conflicting sentiment, and that was inspired by a Reuters poll released on Friday showing that worries over Chinese demand and higher supply countered geopolitical risks and were leading to projections that oil prices would remain range bound in the second half of this year.

This seemed to clash with two earlier prognostications, the first from Standard Chartered, which informed investors that Brent has "significantly further to run" and believed that "with the Q3 supply deficit only partially mitigated by the start of OPEC+ production increases in Q4, we could be looking at a supply deficit beginning in August." 

The second projection was from Ole Hansen, head of commodity strategy for Saxo, who noted that members of the Organization of the Petroleum Exporting Countries (OPEC) needed Brent to trade closer to $90 to balance their budgets and "From an investor perspective, the crude oil market continues to yield a better return than what the change in the spot price is indicating."

Finally, Bloomberg on Friday reported that "Prompt spreads are signalling some strength, with the measure for Brent rallying as high as $1.69 a barrel in a bullish backwardation structure ahead of the contract expiry."