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Crude oil prices drop amid anticipation of boost in American oil inventory levels

Market prices maintain proximity to two-week peaks, buoyed by optimism following the U.S. and China's decision to reduce retaliatory duties.

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Market values maintain proximity to two-week peaks following the US-China agreement on tariff...
Market values maintain proximity to two-week peaks following the US-China agreement on tariff reductions, bolstered by optimistic sentiments.

Crude oil prices drop amid anticipation of boost in American oil inventory levels

Singapore - Oil Prices Dip as US Inventory Build Sparks Concern

In a surprising turn of events, oil prices took a nosedive on Wednesday, as traders kept an eagle-eye on a potential surge in US crude inventories. Despite optimism post the US and China's agreement to temporarily lower their tariffs, prices clung on to two-week highs.

Brent crude declined 39 cents, or 0.6%, to $66.24 a barrel by 4am GMT. US West Texas Intermediate (WTI) slipped 36 cents, or 0.6%, to $63.31. Both benchmarks had surged over 2.5% in the previous session.

The two economic titans agreed on Monday to put their trade war on hold for at least 90 days. The US agreed to lower tariffs to 30% from 145%, and China knocked down duties on US imports to 10% from 125%.

Priyanka Sachdeva, senior market analyst at Phillip Nova, remarked, "The US-China economic standstill could engender a certain level of enthusiasm, assuming cautious optimism prevails."

However, the anticipated leap in US oil inventories restrained this optimism, according to Sachdeva.

Crude stocks swelled by 4.3 million barrels in the week to May 9, as per market sources, quoting figures Wednesday from the American Petroleum Institute. Official weekly inventory data from the US Energy Information Administration is slated for release on Wednesday at 2.30pm GMT.

Investors are keeping a keen eye on demand signals. Analysts at Rystad Energy stated in a note that the agreement had lessened some demand-side pessimism, while urging vigilance against lingering effects of tariffs.

Meanwhile, US President Donald Trump embarked on a Gulf trip this week, with Riyadh marking his first stop. During his appearance at an investment forum, Trump announced the US will lift long-standing sanctions on Syria and secured a $600 billion pledge of Saudi investment.

Preventing oil price spikes during the summer travel season is a key priority for Trump during his trip, Mukesh Sahdev, the global head of commodity markets at Rystad Energy, stated. The US might increase its Middle East crude purchases for its Strategic Petroleum Reserve with lower prices.

The market uncertainty persists as the potential impact of US actions on Iran, Russia, and Venezuela looms large. On Tuesday, fresh sanctions were levied on about 20 companies believed to be supporting Iran's Armed Forces General Staff and its front company, Sepehr Energy, in sending Iranian oil to China. These sanctions followed a fourth round of US-Iran talks in Oman over Iran's nuclear program.

Additional Insights:

The sudden surge in US crude inventories in May, totaling 4.3 million barrels, represents a stark contrast to the decline observed in the preceding week. This jump indicates that supply might be momentarily outpacing demand, exerting downward pressure on oil prices. However, given the current inventory levels, the market isn’t suggesting a severe glut. Furthermore, the global oil supply is projected to increase throughout 2025 and 2026, potentially leading to a more balanced or slightly oversupplied global market, limiting substantial price rallies.

Sources:1. International Energy Agency2. American Petroleum Institute3. U.S. Energy Information Administration4. Reuters5. Rystad Energy

  1. The unexpected increase in US crude inventories, amounting to 4.3 million barrels, has caused concern among energy companies, as it might temporarily outpace demand, resulting in downward pressure on oil prices.
  2. Despite the optimism from the US and China's tariff agreement, the surge in US oil inventories has restrained the enthusiasm of energy market analysts like Priyanka Sachdeva from Phillip Nova.
  3. The ongoing monitoring of demand signals is crucial for finance industry players, as analysts at Rystad Energy have expressed that while the tariff agreement has lessened some demand-side pessimism, it's important to remain vigilant against potential residual effects of tariffs.
  4. The oil-and-gas industry and finance sector are closely observing the market's reaction to US actions on Iran, Russia, and Venezuela, as fresh sanctions imposed on certain companies could potentially disrupt global oil supplies and impact energy markets.

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