SunSirs: Geopolitical Tensions Escalate&Inventories Drop beyond Expectations, Crude Oil Surges by over 4%

https://www.chemnet.com   Aug 02,2024 SunSirs

On July 31st, international crude oil futures rose sharply. The settlement price of the main contract for WTI crude oil futures in the United States was $77.91 per barrel, an increase of $3.18 or 4.3%. The settlement price of the main Brent crude oil futures contract was $80.84 per barrel, an increase of $2.77 or 3.5%. Due to the escalating geopolitical tensions, investors are concerned about the escalation of the Middle East conflict; The significant decrease in US crude oil inventories has provided support for oil prices.

Hamas leader assassinated, 'ceasefire agreement' put on hold

On the 31st local time, Hamas issued a statement stating that its leader Ismail Haniyeh was killed in an attack on the Iranian capital Tehran. Once the news was released, the tension in the Middle East instantly escalated. The efforts made previously to reach a ceasefire agreement between Israel and Kazakhstan may be in vain. Investors generally believe that the current situation in the Middle East is deteriorating, and the tense geopolitical situation may continue to push up the risk premium of crude oil.

EIA: US crude oil inventories continue to decline

On Wednesday, the regular release of commercial crude oil inventory data by the US Energy Information Administration (EIA) showed positive performance. The data showed that US crude oil inventories had declined for the fifth consecutive week. As of the week ending July 26, 2024, US crude oil inventories fell by 3.4 million barrels to 433.05 million barrels, exceeding market expectations by 2.3 million barrels. Set the longest duration of decline since January 2021.

The main reason for the decline in US crude oil inventories is the strong export performance. According to data, the total volume of US crude oil exports increased by 148,000 barrels per day last week to 6.59 million barrels per day; In addition, the EIA report stated that US oil demand set a seasonal record in May, supported by the peak driving season and strong gasoline demand. Analysts said that strong exports and demand outweighed the impact of reduced refining activities and increased imports, driving crude oil inventories to decrease for the fifth consecutive week and providing strong support for oil prices.

The Federal Reserve hints at a rate cut in September

On the 31st local time, the Federal Reserve ended its two-day monetary policy meeting and announced that the target range for the federal funds rate would remain unchanged between 5.25% and 5.5%. This is the eighth consecutive meeting of the Federal Reserve since September last year to keep interest rates unchanged, which is in line with market expectations. But Powell hinted that September may see the first interest rate cut.

Powell stated that the Federal Reserve will continue to maintain a restrictive policy stance, paying close attention to future consumption, housing investment, and the job market, and guarding against market risks. Regarding the highly anticipated interest rate cut, Powell stated that it could happen as early as the next meeting in September, and the overall view of the committee is that the economy is approaching a level suitable for a rate cut. The market generally believes that the Federal Reserve may be the first to lower interest rates by 50 basis points when initiating a rate cut cycle. Overall, the expectation of interest rate cuts has a positive impact on crude oil demand.

The crude oil analyst of SunSirs believes that in the short term, the situation facing crude oil is very complex, and crude oil may intensify its volatility. At present, it is necessary to pay attention to further developments in the Middle East situation, as the tense situation may continue to push up the risk premium of crude oil. At the same time, the expectation of the Federal Reserve cutting interest rates has also brought certain benefits to demand, and oil prices may continue to seek upward space.

In the medium to long term, the supply uncertainty in the oil market is increasing, especially with the upcoming US presidential election. If the Republican Party wins, it may have a more profound impact on the oil market, and US crude oil production may be subject to policy increases. The future game of crude oil supply and demand may seek a rebalancing.

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