Oil Prices Set for Weekly Increases as US Inventories Continue to Decline

Oil prices are poised for weekly gains as oil futures saw a slight increase on Friday. The uptick follows the release of data showing further reductions in U.S. crude and product inventories throughout the week.

The Energy Information Administration’s report on Thursday indicated a decrease of 1.5 million barrels in commercial crude inventories for the week ending June 30, marking the third consecutive weekly decline. Although analysts anticipated a decline of 3.6 million barrels, the actual decrease supported the upward momentum in oil prices. Additionally, gasoline and distillate inventories showed declines of 2.5 million barrels and 1 million barrels, respectively.

Despite the positive trend, concerns regarding global demand have limited the upside potential of crude oil. Traders remain cautious due to the potential impact of interest rate hikes by major central banks, including the Federal Reserve, as well as China’s slow economic recovery since the easing of COVID-19 restrictions. The physical market for crude remains mixed, with prices for Forties crude, a vital marker in determining the Brent price, experiencing a softening trend. Michael Tran, an analyst at RBC Capital Markets, noted that the sluggish physical market makes it challenging to confidently predict upward momentum in Brent spreads until there are clear indications of accelerated progress in the physical market. However, Tran believes that any significant signs of physical strength could lead to a swift and robust change in pricing trends for the summer season.

In conclusion, oil prices are on track to achieve weekly gains as U.S. crude and product inventories continue to decrease. The recent report from the Energy Information Administration revealed declines in commercial crude inventories, gasoline, and distillates. Nonetheless, concerns over global demand and the slow recovery of China’s economy, combined with the mixed physical market for crude, have limited the potential for significant price increases. Analysts are closely monitoring any signs of physical strength that could drive a notable change in pricing trends for the summer season.