The benchmark crude WTI (CM:CL) tumbled by over 4% to $76.68 this week as a combination of plentiful supply and a hawkish Fed weighed on sentiment. The weakness in oil prices comes just days before OPEC’s upcoming meeting.
Plentiful Supply
The latest data from the U.S. Energy Information Administration (EIA) indicated an increase of 1.8 million barrels in crude inventories for the week ended May 17. This was a surprise compared to the Street’s expectations of a decrease of nearly 2.4 million barrels. Similarly, numbers from the American Petroleum Institute (API) pointed to an increase of 2.5 million barrels in U.S. commercial stockpiles for the week ended May 17.
Additionally, stockpiles at the Cushing storage hub increased by nearly 1.8 million barrels. Gasoline inventories are also up by nearly 2.09 million barrels. The increase comes just as gasoline demand is expected to stay buoyant during this Memorial Day weekend. Moreover, the U.S. government is offloading its one-million-barrel gasoline reserve to ease prices during the summer driving season.
And a Hawkish Fed
The combination of this plentiful supply and the Fed’s hawkish stance, as indicated by the latest FOMC minutes, has been weighing heavily on oil prices. Multiple Fed officials have indicated a willingness to raise rates further if inflation picks up pace. Such a scenario could dent the demand for oil.
Is the Price of Oil Going Up or Down?
The weakness in oil prices comes despite the current production cuts from OPEC. Consequently, OPEC could maintain its production curbs at its upcoming meeting on June 1. Still, oil could be headed lower in the near term. The TipRanks Technical Analysis tool is also flashing a Sell signal for oil on a weekly timeframe at present.
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