Oil futures showed a slight upward trend early on Thursday, as market participants hoped to salvage a monthly gain for crude amid signs of tight supplies, providing support to the market.
Price Action
- West Texas Intermediate crude for October delivery was up 42 cents, or 0.5%, at $82.07 a barrel on the New York Mercantile Exchange. Despite a 0.2% decrease in front-month WTI futures for August up until Wednesday’s close, there were back-to-back monthly gains.
- The global benchmark, October Brent crude, rose by 45 cents, or 0.5%, to $86.31 a barrel on ICE Futures Europe. The October contract will expire on Thursday. Meanwhile, the more actively traded November contract gained 44 cents, or 0.5%, reaching $85.68 a barrel. Brent managed to hold on to a 0.3% gain for August through Wednesday, marking its third consecutive monthly advance.
Market Drivers
A summer rally in oil prices, which was partly attributed to production cuts initiated by Saudi Arabia in July, has hit a roadblock in August due to concerns over the global economic outlook. Soft data from China and worries about the country’s struggling property sector have cast doubts upon the demand from the world’s second-largest crude consumer.
U.S. Economic Data and Crude Inventories Impact Oil Market
Strong economic data in the United States, along with declining crude inventories, have had a significant impact on the oil market. The prospect of further tightening by the Federal Reserve has raised expectations and led to an increase in the value of the U.S. dollar and Treasury yields. Both of these factors can directly influence commodity prices, causing them to decrease.
However, softer labor data emerged this week ahead of the release of the key August employment report on Friday. As a result, both yields and the dollar experienced a slight setback.
In contrary to this, the Energy Information Administration reported a substantial decline in U.S. commercial crude inventories. For the week ending August 25, inventories decreased by a remarkable 10.6 million barrels. This is the third consecutive weekly decline recorded and the largest since the week ended July 28.
Over the past five weeks, U.S. commercial crude inventories have decreased by nearly 34 million barrels, according to Alex Kuptsikevich, senior market analyst at FxPro. Despite this decline, inventories are only 1.1% higher compared to the same week last year. Notably, during this period, more than 100 million barrels (22% of the U.S. Strategic Petroleum Reserve) have been released.
Reflecting on recent trends, Kuptsikevich stated, “Oil has shown positive momentum in five out of the last six trading sessions, experiencing a gain of nearly 4%. With reduced volatility, Crude might be signaling an imminent significant upward move.”
Furthermore, an important development coincided with crude oil’s reversal last week after falling below the support level of $78 per barrel. It involved the formation of a “golden cross,” which refers to the occurrence of the 50-day moving average crossing above the 200-day moving average from below. This event has also contributed to bolstering market sentiment, as noted by Kuptsikevich.
