Oil Slips on US Inventory Build, Broader Market Weakness

Oil Prices Steady After Slide as US Inventory Build and Global Risk-Off Mood Weigh on Market

 Crude oil prices stabilized on Thursday after a two-day decline, as rising US stockpiles and weakening demand indicators reinforced concerns about oversupply. Brent crude hovered near $65 per barrel, while West Texas Intermediate (WTI) held below $62, following roughly a 1% slide in earlier sessions. The persistent weakness in broader financial markets, driven by mounting US deficit fears, has compounded bearish sentiment across commodities. (SINGAPORE)

Highlights:

• Brent trades near $65, WTI below $62 after two-day decline.

• US crude inventories rose for a second consecutive week.

• Weak gasoline and distillate demand adds to supply concerns.

Rising US Inventories Signal Oversupplied Market Despite Summer Driving Season

The latest Energy Information Administration data indicated that commercial crude oil inventories in the United States rose for the second straight week, while demand for gasoline and distillates remained subdued. This trend is especially concerning as it precedes the summer driving season, typically a period of heightened fuel consumption. The bearish inventory signal underscores fears that supply continues to outpace demand in the world’s largest oil consumer.

Highlights:

• US crude inventories increased again, signaling oversupply.

• Gasoline and distillate demand indicators remain weak.

• Seasonal expectations for rising fuel usage have yet to materialize.

Broader Market Turmoil Driven by US Deficit Adds to Commodity Pressures

Oil’s decline is occurring alongside a global pullback in risk assets. Concerns about the United States’ widening fiscal deficit prompted declines across US equities, government bonds, and the dollar, with the pressure spilling over into Asian markets. Investors are increasingly cautious about holding US assets, which is feeding into lower demand across the board, including for oil.

Highlights:

• US stocks, bonds, and dollar fell on mounting deficit fears.

• Risk aversion spreads to Asia as global investors pare exposure.

• Waning demand for US assets is undermining oil market sentiment.

OPEC Output Recovery, US-Led Trade War, and Economic Fears Undermine Crude Prices

Crude futures remain under pressure year-to-date, down approximately 13%, as OPEC and its allies continue to return barrels to the market. This supply-side increase has come at a time of weakening demand outlook, with the US-led trade war further dampening expectations for global growth. The ongoing dispute has raised fears of economic deceleration, which would directly reduce global energy consumption.

Highlights:

• OPEC+ continues to raise output amid tepid demand recovery.

• Oil prices down 13% YTD amid a fragile macro environment.

• Trade war and growth concerns weigh on energy demand forecasts.

Geopolitical Risks Persist but Fail to Sustain Oil Price Rally

While geopolitical flashpoints such as US-Iran nuclear tensions and Israeli threats of strikes on Tehran briefly supported prices, these influences have largely proven transitory. Similarly, the ongoing war in Ukraine and the potential tightening of sanctions continue to pose long-term risks to supply. The UK’s call at the G7 for a lower price cap on Russian oil aimed to increase pressure on Moscow but has not significantly shifted market dynamics.

Highlights:

• Israel-Iran tensions added brief risk premium, but faded quickly.

• UK urges G7 to lower Russian oil price cap at Banff meeting.

• Ukraine war and sanctions continue to influence global supply outlook.

Analysts Caution Against Expecting Short-Term Oil Rebound Amid Risk-Off Sentiment

According to Charu Chanana of Saxo Markets, while geopolitical developments may introduce intermittent volatility, the overarching tone remains bearish due to macroeconomic stress. She noted that unless a tangible supply disruption materializes, geopolitical premiums are unlikely to be sustained. The combination of fiscal worries and tepid demand is limiting any meaningful oil price recovery.

Highlights:

• Geopolitical spikes in oil are proving unsustainable without real supply threats.

• US deficit concerns and weak demand are capping any rebound.

• Analyst outlook remains cautious amid global risk aversion.