Oil markets are digesting mixed U.S. inventory data released on Wednesday. Official data showed that oil stockpiles decreased by 6.4 million barrels in the week ending April 19, defying expectations of a 1.6 million barrel increase. However, distillate stockpiles unexpectedly rose by 1.6 million barrels, while gasoline inventories declined by a smaller-than-anticipated 0.6 million barrels. These discrepancies in the products inventory data suggest that U.S. fuel markets remain adequately supplied, which, coupled with the country’s record-high production, dampens the outlook for tighter oil markets.
The primary factor pressuring oil prices is the growing conviction that recent hostilities between Iran and Israel will not escalate into a full-scale conflict. While both countries have engaged in strikes against each other over the past two weeks, neither has signaled a desire to heighten the conflict. This has led traders to scale back their expectations of geopolitical tensions in the Middle East disrupting oil supplies from the oil-rich region.
Despite stricter oil sanctions outlined by the U.S. and its allies against Iran, the extent of these sanctions remains uncertain. The Biden administration is cautious about provoking higher oil and fuel prices ahead of the 2024 presidential elections.
Separately, softer-than-anticipated U.S. purchasing managers index data this week has also weighed on oil prices, heightening concerns that slowing economic growth in the world’s largest fuel consumer will hinder demand. Further clues regarding the U.S. economy will be available in the coming days, including gross domestic product data for the first quarter on Thursday and PCE price index data – the Federal Reserve’s preferred inflation gauge – on Friday, which will likely influence the central bank’s outlook on interest rates. Diminishing expectations of early interest rate cuts by the Fed have also contributed to pressure on oil markets in recent weeks.
