Oil News: Crude Prices Stabilize on U.S. Inventory Drop as OPEC+ Weighs Supply Delay

Oil Prices Rise on Inventory Drop and Potential OPEC+ Supply Delay

Oil prices edged higher on Thursday, lifting off multi-month lows as reports of a potential delay in OPEC+ output hikes and a significant drop in U.S. crude inventories provided support.

However, demand concerns, particularly related to China, kept gains in check. Light crude oil futures remain under pressure, with technical indicators suggesting a potential slide to February’s low of $66.66, unless a significant market shift occurs.

At 10:46 GMT, Light Crude Oil futures are trading $69.37, up $0.17 or +0.25%.

U.S. Crude Stock Decline Offers Support

According to the American Petroleum Institute (API), U.S. crude oil inventories fell by 7.431 million barrels last week, far surpassing analysts’ expectations of a 1 million-barrel draw. The larger-than-anticipated reduction provided a temporary boost to oil prices. John Evans, an analyst at PVM, commented that the API data had given oil a brief reprieve, although concerns around weak global demand linger.

The official U.S. inventory data from the Energy Information Administration (EIA) is expected later today, and further declines in stockpiles could provide additional support to prices.

OPEC+ Considers Delaying Output Increase

OPEC+ members, including Saudi Arabia and Russia, are reportedly discussing a delay to their planned 180,000 barrels-per-day output hike scheduled for October. This comes after oil prices recently dropped to nine-month lows. According to sources within OPEC+, the group is increasingly worried about fragile market sentiment, compounded by the possible resolution of a conflict that has disrupted Libyan exports and the ongoing weak demand outlook.

One OPEC+ source described the delay as “highly possible,” as the group reassesses market conditions. The combination of supply concerns and demand weakness, particularly in China, has fueled uncertainty within the organization, with some members advocating for waiting until December before reintroducing more barrels into the market.

Chinese Demand and Global Refining Margins Impact Outlook

China’s underwhelming economic performance continues to weigh heavily on oil prices. RBC Capital analyst Helima Croft noted that China’s demand shortfall has hurt 2024 growth forecasts, with both crude imports and refinery throughput lagging behind 2023 levels. Weak refining margins globally are also prompting refiners to reduce crude processing, further softening demand.

These developments have led to growing pressure on OPEC+ to extend its current production cuts. OPEC+ has already agreed to maintain a cut of 3.66 million barrels per day (bpd) until the end of 2025 and recently prolonged an additional 2.2 million bpd cut until September 2024.

Market Forecast: Bearish Outlook

Despite the slight uptick in prices, the overall outlook remains bearish. Technical resistance levels at $71.02 to $73.44 could cap short-term gains, while a continued downtrend, driven by the 50-day moving average of $76.26 and the 200-day moving average of $74.26, suggests further declines.

Without a significant recovery in demand or a broader supply disruption, crude prices are likely to trend lower, with a potential test of the February low at $66.66.