Oil Price Forecast: Concerns Persist as API Stockpiles Surge Unexpectedly

Oil Highlights

• U.S. crude stockpiles unexpectedly increase, raising demand concerns
• Disappointing economic data from the United States and China
• Sentiment dampened by concerns over global recession, debt ceiling talks

Oil Overview

Amidst concerns about demand, oil prices are exhibiting minimal movement on Wednesday as traders remain cautious. The market sentiment has been influenced by an unforeseen rise in U.S. crude stockpiles, coinciding with disappointing economic data from both the United States and China.

At 05:57 GMT, WTI Oil is trading $70.31, down $0.32 or -0.45%. On Tuesday, the United States Oil Fund ETF (USO) settled at $62.54, down $0.45 or -0.71%.

Crude prices continue to be under pressure as energy traders can’t seem to shake off their concerns about global demand. Despite the optimism surrounding China’s performance in the latter half of the year, the current circumstances are too disappointing to ignore.

API Stockpiles Surge Unexpectedly

Unexpectedly, crude oil stockpiles in the United States saw a surge of 3.69 million barrels this week, as revealed by data from the American Petroleum Institute (API) on Tuesday. Analysts had predicted a decrease of 1.3 million barrels, making this development even more surprising. The total amount of crude oil accumulated this year has now reached approximately 42 million barrels.

As for gasoline inventories, they declined by 2.46 million barrels after experiencing a slight increase of 399,000 barrels in the previous week. Distillate inventories also dropped by 886,000 barrels, following a significant decrease of 3.945 million barrels in the previous week.

In Cushing, Oklahoma, inventories rose by 2.87 million barrels, which is in contrast to the decrease of 1.316 million barrels observed last week.

Economic Worries Deepen

Concerns about U.S. economic growth intensified as crude inventories increased, and retail sales in April fell short of expectations. The ongoing discussions on raising the U.S. debt ceiling further weighed on the market, with the Treasury Department warning of a potential default by June 1 if Congress fails to act.

China’s Economy Slows

China experienced a slowdown in its economy during the early part of the second quarter. Disappointing figures for April’s industrial output and retail sales contributed to this sentiment. Additionally, stalled debt ceiling talks and underwhelming retail earnings further dampened market sentiment. As a result, concerns about a global recession intensified.

G7 Targets Russia with Expanded Sanctions

Furthermore, all eyes are on the imminent gathering of G7 leaders in Japan from May 19-21, where significant discussions regarding the expansion of sanctions on Russia are set to occur. Informed sources have disclosed that the G7 intends to direct its attention towards tackling sanctions evasion that involves third-party nations, with the primary objective of restricting Russia’s forthcoming energy production and curbing trade that bolsters its military capabilities.

EIA Expects 1.5M Barrel Draw

U.S. government data on crude and product stockpiles is due at 14:30 GMT.  Traders are expecting the Energy Information Administration (EIA) to report a 1.5 million barrel draw.

Technical Analysis

WTI Oil is trading on the weakside of $72.57 (S1), making it new resistance. A sustained move under this level will indicate the selling pressure is getting stronger. If this creates enough downside momentum then look for the selling to possibly extend into $68.49 (S2) over the near-term.

Overtaking, $72.57 (S1) will signal the return of buyers. Generating enough upside momentum could drive the market into the major pivot at $78.02.

Resistance & Support Levels