Oil settles higher on decline in U.S. supplies as traders weigh demand outlook

By Myra P. Saefong and William Watts

Prices reverse course after falling to multiweek lows

Oil futures settled higher Wednesday, buoyed by a second straight weekly decline in U.S. crude supplies, as a slowdown in the U.S. inflation rate lifted prospects for interest-rate cuts and the potential for stronger energy demand.

Prices had traded lower early Wednesday after the International Energy Agency reduced its growth forecast for 2024 oil demand.

Price moves

West Texas Intermediate crude for June delivery CL.1 CLM24 rose 61 cents, or 0.8%, to settle at $78.63 a barrel on the New York Mercantile Exchange. It had traded as low as $76.70 - the lowest level for a front-month contract since late February, FactSet data show. July WTI CL00 CLN24, which is among the most actively traded contracts, added 51 cents, or 0.7%, at $78.16 a barrel.July Brent crude BRN00 BRNN24, the global benchmark, climbed 37 cents, or nearly 0.5%, to $82.75 a barrel on ICE Futures Europe. June gasoline RBM24 added 1.5% to $2.50 a gallon, while June heating oil HOM24 tacked on 0.1% to $2.42 a gallon.Natural gas for June delivery NGM24 also settled at $2.42 per million British thermal units, up 3.1%.

Market drivers

U.S. inflation and consumer-spending data both affirmed a path of "slowing pressures" that should allow the Federal Reserve to begin interest-rate cuts this year, but the data also confirm that the economy continues to expand, said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management.

The cost of consumer goods and services rose 0.3% in April. That was less than the 0.4% increase expected by economists polled by the Wall Street Journal. The report on consumer prices also showed inflation rising at a 3.4% pace over the past year, down slightly from 3.5% in the prior month.

Treasury yields fell following the consumer-price index data, "reflecting hopes for cuts," said Haworth. "Markets are increasing odds for a start to rate cuts in September, with perhaps two total cuts in 2024."

Markets have feared much softer global energy demand as the Fed maintains higher interest rates for longer, noted Haworth. "A shift to a modest easing bias should help demand as we head into the peak demand season for the Northern Hemisphere in the summer," he said.

However, Wednesday also saw the International Energy Agency lower its forecast for global oil-demand growth this year - with growth now seen at 1.1 million barrels a day, down from a previous forecast of 1.2 million barrels a day. It cited lower-than-expected growth in the first quarter.

Over the past month, oil markets have eased fears that the Middle East conflict will constrain existing oil supplies from the region, putting pressure on oil prices, Haworth said.

However, "improving economic data from Europe and China should lift global activity and demand," he added.

On Tuesday, WTI and Brent both ended at their lowest levels since March 12, with analysts citing worries over the U.S. inflation outlook and the path for interest rates after a hotter-than-expected reading on wholesale prices.

Meanwhile, Slovakia Prime Minister Robert Fico was reportedly gravely wounded in an attempted assassination Wednesday.

For now, traders are taking a wait-and-see approach regarding the developments in Slovakia, said Phil Flynn, senior market analyst at the Price Futures Group.

The concern is that following the incident, Russia may have "more control of one of the Soviet satellite states," he told MarketWatch, implying that could sway its two-plus-year war with Ukraine in its favor.

Supply data

U.S. commercial crude inventories declined for a second week in a row, with the Energy Information Administration reporting on Wednesday a fall of 2.5 million barrels for the week that ended May 10.

On average, analysts forecast a crude-supply decline of 500,000 barrels, according to a poll conducted by S&P Global Commodity Insights. Late Tuesday, the American Petroleum Institute reported a crude-inventory decrease of 3.1 million barrels, according to a source citing the data.

The EIA report also showed a weekly supply decline of 200,000 barrels for gasoline, while distillate stockpiles "slightly decreased" to stand essentially flat for the week. The S&P Global Commodity Insights survey called for inventory decreases of 600,000 barrels for gasoline and 1 million barrels for distillates.

U.S. oil production was unchanged at 13.1 million barrels per day in the latest week, the EIA said, while crude stocks at the Cushing, Okla., Nymex delivery hub were down by 300,000 barrels, to 35 million barrels.

Gasoline demand showed only slight signs of improvement. Motor-gasoline supplied, a proxy for demand, edged up to 8.875 million barrels a day last week, from 8.797 million the previous week, the EIA data showed.

-Myra P. Saefong -William Watts

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05-15-24 1508ET

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