Retail Slide, IEA Report Send Mixed Signals To Oil Traders

Meanwhile, the UK and others debate getting tough on Russia - again: File Image/Pixabay

Crude traders on Thursday did an about face and caused prices to rise about 2 percent following news of a sliding index for the U.S. dollar, making the commodity cheaper for holders of other currencies.

The slide was attributed to a larger than expected drop in U.S. retail sales in January: the Commerce Department reported that the decline was 0.8 percent, the most in 10 months, and although economists suggested this was merely due to frigid winter temperatures, traders viewed it as a slowdown of momentum in consumer spending.

As of 1:15 p.m. EST, Brent was up $1.39, or 1.7 percent, at $82.99 per barrel; West Texas Intermediate was up $1.52, or 2 percent, at $78.16.

The data rekindled expectations that central banks would reconsider cutting interest rates in the immediate future, and Phil Flynn, senior market analyst at Price Futures Group Inc., said, "Rate cuts are back on the table and that's giving us a bit of a boost."

But as usual, the market on Thursday was awash with mixed signals, the most significant disrupter being a report from the International Energy Agency downgrading its 2024 growth forecast to 1.22 million barrels per day (bpd) from 1.24 million bpd, and stating that global oil demand is losing momentum.

The IEA wrote, "The expansive post-pandemic growth phase in global oil demand has largely run its course."

The IEA also estimated that supply will grow by 1.7 million bpd this year compared to a previously calculated 1.5 million bpd; the agency believed the crude market could be in surplus all year due to expanding supplies from countries not affiliated with the Organization of the Petroleum Exporting Countries (OPEC) and a slowdown in consumption increases.

However, Bloomberg pointed out that "market metrics continue to signal tight conditions, with timespreads for both major benchmarks holding in a bullish, backwardated structure."

Tamas Varga, analyst at PVM, called bearish reaction to the IEA's forecast "knee jerk" and further stated, "Although this year's demand growth will be much slower than that of 2023, global oil inventories should still decline throughout the current year if OPEC keeps output low, as expected."

In other oil news on Thursday, at a Brussels meeting the U.S., EU, UK and other parties assessed the current sanctions against Russia ahead of the second anniversary of the Russian invasion of Ukraine, and an official told Reuters that "Many of us are prepared to roll out quite robust anniversary packages."