Crude Oil Gains on EIA Inventory as Chinese Data Clouds Outlook
Jun 7, 2023
Crude oil futures (/CL) were up about 1.2%, or 88 cents, on Wednesday afternoon as energy traders digested the latest data affecting the commodity’s supply and demand outlooks. Meanwhile, Brent crude futures (/BZ) traded higher, rising about 0.8%, or 60 cents, during the same period.
On Wednesday, the U.S. Energy Information Administration (EIA) reported that crude oil stockpiles fell by 451,000 barrels for the week ending June 02. That was a bullish print compared to the 1.02-million-barrel build that analysts were expecting. Typically, a reduction in the supply of a commodity increases prices, whereas an increase reduces prices.
Traders used that data to reverse a price decline early in the session after China reported weak export data for May, suggesting that global demand is softening. Meanwhile, the data also revealed that China has increased its oil imports. But given sluggish domestic activity in the country, those imports are likely due to Beijing boosting state inventories.
While increased import appetite in the world’s second-largest economy may appear bullish, this could lead to softer imports later this year, especially if China’s economy doesn’t undergo an economic rebound expected by some analysts.
The downbeat data out of China stifled bullish optimism in the energy sector after OPEC’s decision to increase its production cuts earlier this week energized buying. The cartel decided on Sunday to slash output via Saudi Arabia by about one million barrels a day and other countries, albeit to a smaller extent.
At the same time, some tension is brewing in the group between Russia and other members, who are skeptical that Russia is abiding by its portion of production cuts. For now, Saudi Arabia's cuts are temporary, existing for only July, but the group may extend those cuts. For now, markets are watching weekly inventory levels and Chinese economic data while keeping an eye on OPEC chatter.
Oil prices are positive this week but failed to clear the 50-day Simple Moving Average, which acted as resistance back in May. Until bulls cleanly clear that level, prices may consolidate around the 61.8% Fibonacci retracement level from the March to April move. Overall, volatility has decreased, as shown by the contraction from March and April’s wide price waves. Traders with a neutral bias may want to employ non-directional strategies.
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