Oil Price Forecast: Surprise API Crude Inventory Increase Hints at Weaker Demand Ahead of CPI Data

Oil Highlights

• US crude inventories unexpectedly increase, signaling weakening demand
• OPEC+ production cuts and Alberta wildfires impact global oil market
• Investors closely monitor US CPI figures and potential Fed rate hikes

Oil Overview

An unexpected rise in U.S. oil inventories sparked demand concerns, causing oil prices to dip and the three-day rally to stall or come under pressure on Wednesday. Investors are awaiting U.S. inflation data to gauge the next rate decision in the top oil consuming nation.

As of 06:04 GMT, WTI Oil is being traded at $73.16, reflecting a decrease of $0.44 or -0.59%. On Tuesday, the United States Oil Fund ETF (USO) settled at $64.87, indicating an increase of $0.61 or +0.95%.

US Crude Inventories Unexpectedly Rise

As per the American Petroleum Institute (API), the latest figures on U.S. crude inventories suggest a significant deviation from expectations. Specifically, inventories rose by around 3.618 million barrels in the week ending May 5, surprising analysts who had projected a 900,000-barrel drawdown. This increase is seen as a possible sign of weakening demand. In addition, gasoline inventories rose by 399,000 barrels, while distillate inventories fell by 3.945 million barrels. Investors now eagerly await the latest U.S. government data on oil inventories, due to be released by the Energy Information Administration (EIA) on Wednesday.

OPEC+ Production Cuts Impact Market

At present, several factors are influencing the global oil market. Specifically, OPEC+ production cuts and Russia’s oil output reductions have already impacted the market. Furthermore, Saudi Arabia has pledged to cut production by 500,000 bpd from May. As a result, investors are eagerly anticipating the release of the upcoming OPEC report. This report is expected to provide crucial insights into whether OPEC and its allies will need to make further production cuts to bolster oil prices.

Wildfires Disrupt Canada’s Oil Production

The recent wildfires in Alberta, Canada’s primary oil-producing province, have had a significant impact. Specifically, oil and gas producers have had to shut down at least 319,000 barrels of oil equivalent per day, accounting for 3.7% of the country’s production. Moreover, this disruption to supply has been compounded by other recent developments. These include the unexpected increase in US crude inventories, as well as lower crude imports and weaker export growth in China during April. Consequently, concerns about global oil demand have intensified.

Investors Cautious as US Economy Wobbles

Investors should monitor any indications of the economic health of the U.S. economy, which currently looks uncertain and dismal.

The market is eagerly anticipating the release of the U.S. consumer price index (CPI) figures for April, scheduled to be released on Wednesday, to gauge the inflation rate. This will be a crucial indicator for the future course of action for the Federal Reserve.

On Tuesday, New York Fed President John Williams stated that inflation remains too high and that the central bank will not hesitate to raise rates again if necessary, despite the U.S. central bank dropping guidance about the need for future hikes.

These developments suggest that investors should remain cautious and closely monitor market indicators to make informed decisions.

Technical Analysis

WTI Oil traders are trying to establish new higher support at $72.57 (S1). If successful, it could drive prices into the pivot at $78.02 over the near-term.

On the downside, a failure to hold $72.57 (S1) will be a sign of weakness. This could be the trigger point for an acceleration into (S2) at $68.49.

Essentially, controlling the near-term direction is $72.57 (S1).

Resistance & Support Levels