Oil market sentiment remained gloomy. ICE Brent fell more than 5% Wednesday, settling in the $75/bbl range. This is the greatest daily percentage drop since early January and the lowest level since March. There are a few new factors to warrant the sell-off. However, investors appear to be becoming concerned about the macroeconomic outlook and its implications for oil consumption.
Speculators have already reduced their net long position in ICE Brent in recent weeks, while speculators have converted from a net long to a net short position in ICE gasoil. The big question today is where the market’s floor is. From a technical standpoint, US$70/bbl, which was close to the March low, should give support to the market.
Furthermore, it is possible that the US administration may begin to replenish its strategic petroleum stockpiles around these levels. Finally, breaching below US$70/bbl would be a source of concern for OPEC+. Thus, talk of extra cuts would certainly increase if we trade down toward this level.
According to Bloomberg’s OPEC production survey, the group’s output declined by 310Mbbls/d month on month to 28.8MMbbls/d in April. Iraq mostly drove the reduction. The country’s output has declined by 250 million barrels per day month on month.
This was due to the interruption of oil shipments from Northern Iraq via Ceyhan, Turkey. Furthermore, Nigerian output is projected to have plummeted by 120 million barrels per day. More production cuts are expected in May, with a number of OPEC nations reducing output from May through the end of the year.
The API reported tonight that US crude oil stockpiles declined by 3.9MMbbls in the previous week, which was higher than the market-expected 500Mbbls decline. On the product side, gasoline supplies increased by 400 million barrels, while distillate fuel oil stocks decreased by 1 million barrels.
Metals – Iron ore vulnerability
Iron ore prices are still hovering around $100/t after falling more than 17% month on month in April. Prices have fallen as a result of unclear demand and sufficient seaborne supply, particularly from Australia. The weaker-than-expected peak building season in China has also put pressure on raw material costs.
Last week, China Baowu Steel Group, the world’s largest steelmaker, stated that the domestic as well as global climate for steel makers remained challenging, with Chinese steel demand expected to stay poor for the rest of the year.
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