Oil prices continued to recover on Wednesday, marking their second consecutive session of gains despite Saudi Arabia’s recent decision to lower its crude prices, signaling concerns over demand.
MARKET PERFORMANCE
Brent Crude:
- Climbed to $78.76 per barrel, up 0.45% on the day.
West Texas Intermediate (WTI) Crude:
- Rose to $74.5 per barrel, up 0.58% on the day.
BACKGROUND AND MARKET DYNAMICS
The rebound follows a sharp selloff where the benchmarks had dropped almost 9% over five sessions. This decline had pushed the 14-day Relative Strength Index (RSI) for both benchmarks below 30, a level typically seen as indicating oversold conditions, prompting technical buying.
SAUDI ARABIA’S PRICE CUTS
Saudi Aramco, the state oil company, has lowered its prices for all crude oil grades sold to Asia for next month, marking the first reduction since February. This move has raised concerns over demand strength in Asia, the world’s top crude importing region. The price cut indicates potential worries about the region’s ability to absorb current supply levels amid a less optimistic economic outlook.
BROADER MARKET INFLUENCES
- OPEC+ Supply Strategy:
- OPEC+ plans to reintroduce supply to the market, which initially pressured prices downward.
- Concerns linger over whether the market can absorb the additional barrels, especially given the increase in supply from non-OPEC producers.
- Demand Concerns:
- A less favorable outlook from top importer China has contributed to downward pressure on oil prices.
- Geopolitical tensions, which often support higher oil prices, have eased recently.
- US Crude Inventories:
- US crude inventories increased by 1.23 million barrels last week, according to government data.
- Gasoline stockpiles also climbed for a second week, reaching the highest levels since March, further contributing to the bearish outlook.
MARKET ANALYSIS
Despite these bearish indicators, the market has shown resilience. Charu Chanana, an analyst at Saxo Capital Markets Pte in Singapore, noted that “the market is showing resilience” despite the builds in US stockpiles. She attributed the recent gains to traders finding technical reasons to buy, highlighting the role of technical indicators in the current market dynamics.
