Oil ends at 9-week low after OPEC leaves demand forecast unchanged

By Myra P. Saefong and William Watts

Losses for oil accelerate after data show a rise in U.S. wholesale prices

Oil futures settled at a nine-week low on Tuesday, as the Organization of the Petroleum Exporting Countries left its monthly forecasts largely unchanged while traders weighed the outlook for interest rates and their potential impact on energy demand.

Price moves

West Texas Intermediate crude for June delivery CL.1 CLM24 fell $1.10, or 1.4%, to settle at $78.02 a barrel on the New York Mercantile Exchange, the lowest front-month finish since March 12, according to Dow Jones Market Data. July WTI CL00 CLN24, the most actively traded contract, lost 95 cents, or 1.2%, at $77.65 a barrel.July Brent crude BRN00 BRNN24, the global benchmark, declined 98 cents, or 1.2%, at $82.38 a barrel on ICE Futures Europe, also the lowest since March 12. June gasoline RBM24 fell 2% to $2.46 a gallon, while June heating oil HOM24 lost 0.7% to $2.42 a gallon.Natural gas for June delivery NGM24 settled at $2.34 per million British thermal units, down nearly 1.6%.

Market drivers

Oil prices declined after a "lackluster" monthly OPEC report and as uncertainty over the path for interest rates has worsened, said Samer Hasn, market analyst at XS.com.

The OPEC report "did not bring anything new regarding future expectations for this year and next year," he said in market commentary.

OPEC left its forecast for 2024 demand growth unchanged at 2.2 million barrels a day, or mbd, after a slight increase in first-quarter demand from developed economies in the Americas and China was offset by a downward revision to second- and third-quarter demand from the Middle East. OPEC left its forecast for 2025 demand growth unchanged at 1.8 mbd.

Supply from producers outside of OPEC+ - made up of OPEC and its allies, led by Russia - is expected to grow by 1.2 mbd in 2024, unchanged from its April forecast and driven largely by the U.S., Brazil, Canada and Norway, OPEC said. Output growth in 2025 is seen at 1.1 mbd, also broadly unchanged from the April outlook.

Ahead of the group's meeting on June 1, OPEC+ members appear to want to keep "everything on the table" as they weigh whether to extend voluntary production cuts due to expire at the end of next month, said Barbara Lambrecht, commodity analyst at Commerzbank, in a note.

Members "are likely to wrestle hard with each other at the beginning of June, as OPEC+ would probably risk a further price slide by announcing a gradual phasing out of the voluntary cuts," she wrote.

In the U.S., the latest economic data provided another sign of sticky inflation, with the producer-price index up 0.5% in April.

Oil prices had already started to decline following the OPEC report, but those losses accelerated after the PPI data, Colin Cieszynski, chief market strategist at SIA Wealth Management, told MarketWatch. "Despite signs of an improving Chinese economy, OPEC+ did not boost their demand forecast, kicking away at what had been a key driver behind the price."

OPEC+ did not boost their demand forecast, 'kicking away at what had been a key driver behind the price.'Colin Cieszynski, SIA Wealth Management

The main U.S. data, however, comes on Wednesday with the release of the April consumer-price index, which may dictate expectations for the timing and scope of interest-rate cuts by the Federal Reserve.

The possibility of rate cuts has shifted, from June to September at least, in "light of the acceleration of inflation, driven by strong economic activity," said Hasn.

Fed Vice Chair Philip Jefferson, meanwhile, expressed the central bank's concern about the trend in inflation, which is fueled by a strong labor market and which may prompt relief about keeping current rates high for a longer period, said Hasn.

Overall, there's concern in the oil market of a "shift in the course of the money markets, which in turn may be the result of another possible shift that may occur in interest-rate expectations" that may find its way to the energy markets, which are "naturally affected by the shift in the monetary landscape," he said.

-Myra P. Saefong -William Watts

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05-14-24 1521ET

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