Oil steadies as economic fears counter Opec+ cuts, US stock draw

OIL prices settled largely unchanged on Wednesday (Apr 5), despite greater-than-expected draws in US crude and fuel stockpiles, as the market weighed worsening economic prospects against expectations of US crude inventory declines and plans by Opec+ producers to reduce output.

Brent crude futures settled up 5 US cents, or 0.1 per cent, at US$84.99 a barrel, while West Texas Intermediate crude ended 10 US cents, or 0.1 per cent, lower at US$80.61 a barrel.

US crude inventories fell 3.7 million barrels last week, about 1.5 million barrels more than forecast, government data showed. Petrol and distillate stocks also fell more than expected, drawing down by 4.1 million barrels and 3.6 million barrels, respectively.

“Maybe following the strong price rally this week, investors are a bit cautious on jumping on a strong report,” said UBS analyst Giovanni Staunovo.

Prices jumped by more than 6 per cent on Monday after the Organization of the Petroleum Exporting Countries and allies including Russia, collectively known as Opec+, pledged voluntary production cuts.

“The decision by Opec+ to voluntarily cut crude supplies from May onwards has come as a surprise to many, considering that the global crude balance was already expected to become increasingly tight over the summer months, something that will certainly help keep crude prices supported,” Kpler crude analyst Johannes Rauball said.

Data showing cooling economic conditions weighed against higher demand for crude and fuel.

US job openings in February dropped to the lowest level in nearly two years, suggesting that the labour market was cooling.

“(The data) could be the first signs of weakness in the US labour market and that is huge. Without it, (the US Federal Reserve) will find it very hard to make the argument that it is pausing the tightening cycle,” said Craig Erlam, senior markets analyst at Oanda.

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Oil steady as markets weigh Opec+ surprise cuts amid demand woes

Traders will be looking for cues on broader economic trends from US non-farm payrolls data due this week, as weak economic data from the US and China raise demand fears.

“The present raises concerns about healthy economic expansion as Chinese, eurozone and US manufacturing activity slowed last month,” said Tamas Varga of oil broker PVM.

Record Russian diesel flows to the Middle East in March and the sluggish performance of middle distillates contracts have “acted as a brake on any attempt to push crude oil prices meaningfully higher”, Varga said. REUTERS