Americas News
Crude Benchmarks Headed For Monthly Gains, But Rangebound Trading Will Persist
Bullish sentiment inspired by tight crude supply battled throughout Thursday with bearish fears of interest rate hikes, with the former causing oil prices to ultimately settle higher – but minimally.
Still buoyed by Wednesday's disclosure of the 9.6 million drop in U.S. crude inventories, Brent rose 31 cents, or 0.4 percent, to $74.34 per barrel, while West Texas Intermediate rose 30 cents, or 0.4 percent, to $69.86 per barrel.
Despite investor worries about the economy throughout June, as the month winds down WTI is on course to finish up 0.9 percent after an 11 percent slump in May, while Brent is headed for a 3 percent gain versus a 9 percent drop in May.
However, Craig Erlam, analyst at OANDA, pointed out that "The gradual consolidation that we're seeing in crude doesn't appear to be nearing an end, with the price simply fluctuating between the range highs and lows over the last couple of months."
Erlam continued, "The uncertainty around inflation, interest rates, and therefore the economy may well be behind that as investors have frequently been caught out by just how stubborn price pressures have been and how much central banks will need to do in order to contain them; until we get more clarity on that, this range trading may continue."
The only certainty is that rate hikes are assured: in the previous session the European Central Bank, the Federal Reserve, the Bank of England and Bank of Japan all indicated that they would be enacting higher rates in the near future.
Compounding the inevitability of more hikes is the remarkable resilience of the post Covid economy: the U.S. Commerce Department on Thursday disclosed that GDP grew by an annualized 2 percent in the first quarter of this year, compared to expectations for a 1.4 percent growth.
By comparison, the Consumer Price Index grew by 4 percent in the year to May, but while this is its slowest pace in over two years, it's still double the Fed's 2 percent target for annual inflation.
Perhaps the most salient description of the oil market's current state was supplied on Thursday by John Kemp, market analyst for Reuters, who stated, "For all the powerful rhetoric from bulls and bears, including some producers and investors, the market remains in a glass half-full, half-empty condition, depending on your perspective."
Kemp noted that despite trading turmoil, "Global petroleum prices appear reasonable given the level of inventories – to the frustration of the producers who would like them to be significantly higher."
Kemp was unwilling to predict what would happen moving forward, acknowledging that "production cuts by Saudi Arabia and its allies in OPEC⁺, as well as the declining oil and gas rig counts in the United States are likely to deplete inventories later in 2023 and into 2024" – but that this will be met with "high exports from Russia, Venezuela and Iran; rising interest rates and slowing economies in North America and Europe; and a sluggish post-pandemic recovery in China."
