Oil Trade Alert: API Data Supports Price Recovery, Eye on EIA

On Thursday (October 17th), in the early Asian market, international oil prices rebounded slightly, reducing the significant decline from the previous two trading days. West Texas Intermediate (WTI) crude oil is currently trading near $70.94 per barrel, as the previous API data showed an unexpected decline in U.S. crude oil inventories last week, and the geopolitical situation in the Middle East also attracted buyers looking for bargains to support oil prices. As of 09:40, Brent crude futures rose by 0.7%, reporting $74.77 per barrel. U.S. crude futures increased by 0.8%, reporting $70.94 per barrel. These two benchmark crudes closed at their lowest levels since October 2nd for the second consecutive day on Wednesday. The settlement price for Brent crude futures was $74.22 per barrel, down by $0.03, while U.S. crude futures fell by $0.19, or 0.3%, with a settlement price of $70.39 per barrel. Following the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA)'s downgrade of demand forecasts for 2024 and 2025, these two benchmark crudes have fallen by 6-7% so far this week. Despite the ongoing uncertainty of conflicts in the Middle East, concerns about potential disruptions to oil supplies due to retaliatory attacks by Israel on Iran have eased, cooling the risk premium and contributing to the decline in oil prices.

"We are now waiting for two things. The first is the details and scale of the fiscal stimulus package that the Asian powerhouse will formulate, which I believe will be announced soon," said Tony Sycamore, a market analyst at IG in Sydney. "The second is Israel's response to Iran. We know Israel will respond, but we don't know when." He added that both factors pose an upside risk to oil prices. Market sources cited data from the American Petroleum Institute (API) on Wednesday, stating that U.S. crude oil inventories decreased by 1.58 million barrels last week. Analysts surveyed by Reuters had previously predicted that crude oil inventories would increase by about 1.8 million barrels last week. Due to Columbus Day on Monday, the U.S. Energy Information Administration (EIA) will release inventory data at 23:00 on Thursday this week.

On the demand side, OPEC and the IEA have downgraded their global oil demand growth forecasts for 2024, with the Asian powerhouse being the main factor in the downgrade. The IEA predicts that global oil demand will reach a peak of less than 102 million barrels per day before 2030 and then decline to 99 million barrels per day by 2035. The International Energy Agency stated on Wednesday that as fossil fuel demand is set to peak by the end of this decade, the world is on the brink of a new era of electricity, which means that an oversupply of oil and natural gas will drive investment in green energy. Fatih Birol, the IEA's executive director, said in a press release accompanying the annual report: "The prospect of more abundant (even excessive) oil and natural gas supply in the second half of this decade, depending on the evolution of geopolitical tensions, will usher us into a very different energy world." Birol said that an oversupply of fossil fuels could lead to lower prices and enable countries to allocate more resources to clean energy, thus ushering the world into an "electricity era." In the near term, if conflicts in the Middle East disrupt oil supplies, there is also a possibility of reduced supply. The IEA stated that such conflicts highlight the pressures faced by the energy system and the need for investment to accelerate the transition to "cleaner, safer technologies."

Positive economic news from the U.S. and Europe on Wednesday helped to limit the decline in oil prices. The Eurozone economy has shown some good signs, with a series of economic indicators showing that although the Eurozone economy, which has been on the brink of recession for more than a year, has been weak in growth, there have been some positive trends. U.S. import prices in September recorded the largest decline in nine months, due to a significant drop in the cost of energy products, indicating a favorable inflation outlook and the Federal Reserve's continued interest rate cuts. The report released by the Department of Labor on Wednesday also showed that import prices, excluding fuel, have remained essentially flat over the past three months. Data released last week showed that consumer prices rose only slightly in September. Although producer prices were flat in September, some components performed strongly, indicating that this means the Federal Reserve's key inflation indicator, the Personal Consumption Expenditure (PCE) price index, is expected to rise on a month-on-month basis. "Import prices do not directly pass through to producer and consumer prices, but they are a signal that inflationary pressures remain low, providing some support for another rate cut in November," said Matthew Martin, a senior U.S. economist at Oxford Economics. With the decline in factory prices in China, the increase in import prices will remain moderate. According to the U.S. Department of Labor's Bureau of Labor Statistics, import prices fell by 0.4% month-on-month in September, the largest decline since December 2023, with the August data revised to a 0.2% decline, previously a 0.3% decline. In addition to EIA data, this trading day will also see the release of the U.S. September retail sales monthly rate, the change in the number of U.S. initial jobless claims, and the U.S. September industrial output monthly rate. Investors also need to pay attention to these, and continue to monitor news related to geopolitical situations.