Oil rebounds, gains 1% after US crude draw, lukewarm inflation data.
Brent futures climbed 37 cents, or 0.5%, to settle at $82.75 a barrel, while U.S. West Texas Intermediate crude (WTI) gained 61 cents, or 0.8%, to close at $78.63.
The narrowing premium of Brent over WTI, reaching its lowest since March 28, may impact energy companies’ profitability, making it less attractive to export crude cargoes to the U.S.
Earlier, both benchmarks dipped into technically oversold territory, with prices hitting their lowest since February, driven by the bearish IEA report. However, the market reversed course after U.S. data revealed a larger-than-expected crude drawdown and subdued inflation, fueling expectations of an interest rate cut later in the year.
The Energy Information Administration (EIA) reported a 2.5 million-barrel drop in U.S. crude inventories last week, surpassing the forecasted 500,000-barrel draw in a Reuters poll.
Bob Yawger, director of energy futures at Mizuho, attributed the drawdown to an increase in refinery utilization rates, signaling a boost in refining activity.
Inflation figures for April, showing slower-than-expected growth, bolstered market anticipation of a Fed interest rate cut in September. Lower interest rates could stimulate economic activity and fuel demand for oil.
As expectations of a Fed rate cut mount, the U.S. dollar fell to a five-week low against a basket of other currencies. A weaker dollar typically boosts demand for commodities like oil, as they become cheaper to purchase in other currencies.
The IEA’s downward revision of its 2024 oil demand growth forecast widened the gap with OPEC’s expectations for this year’s global demand outlook.
Meanwhile, OPEC+ is likely to conduct its June 1 oil policy meeting online rather than in Vienna as initially planned, according to four OPEC+ sources.
In Canada, officials anticipate favorable winds to redirect a significant wildfire away from the oil sands city of Fort McMurray, alleviating concerns after thousands were ordered to evacuate. Fort McMurray serves as a crucial hub for Canada’s oil sands production.
