SunSirs: US Crude Oil Inventory Increased significantly and the Geopolitical Situation Cooled, with Crude Oil Fell more than 6% during the Holiday

On May 3rd, international crude oil futures closed lower, with the settlement price of the US WTI crude oil futures main contract at $78.11 per barrel, a decrease of $0.84 or 1.1%. The settlement price of the Brent crude oil futures main contract was $82.96 per barrel, a decrease of $0.71 or 0.9%. During the May Day holiday, international crude oil prices plummeted significantly. From April 30th to May 3rd, Brent crude oil recorded a decrease of 5.95%, WTI crude oil recorded a decrease of 6.85%, and oil prices fell to nearly two month lows. The main reason is the significant increase in US inventory, coupled with the expectation of a ceasefire in the Middle East, which has eased geopolitical tensions.

EIA: Significant increase in US crude oil inventories

The report released by the US Energy Information Agency (EIA) on Wednesday showed that US crude oil inventories increased beyond expectations during the week of April 26th. Data shows that US crude oil inventories increased by 7.3 million barrels to 460.9 million barrels, the highest level since June 2023. The increase was the largest since the week of February 9, 2024, after analysts had expected a decrease of 1.1 million barrels.

The main reason for the significant increase in crude oil inventories is the significant decline in US exports, which also indicates weak global oil demand. Meanwhile, the utilization rate of refinery capacity in the United States has recorded a decline, and the lower operating rate of refineries is also an important reason for the accumulation of crude oil reserves. In addition, the inventory of finished oil in the warehouse increased by 300,000 barrels, indicating that the seasonal peak season in North America is not significant, and the demand for finished oil has not increased as expected.

Ceasefire negotiations continue to ease geopolitical tensions

With the push of the United States and Egypt, the possibility of reaching a ceasefire agreement between Israel and Hamas has increased. On April 29th, a Hamas delegation arrived in Egypt; Relevant information confirms that Hamas will return to Cairo with a written response to the ceasefire agreement when it leaves on that day. On the 30th, Israel sent a delegation to Egypt to participate in negotiations on a ceasefire with the Palestinian side.

On the evening of May 3rd local time, the Egyptian security department announced that a delegation from Hamas will arrive in Cairo on the 4th to negotiate on issues related to the ceasefire plan. At present, the market is still paying attention to the dynamics of negotiations between Kazakhstan and Israel. Overall, the current tension in the Middle East has eased, and with the urging of the international community, the hope for a ceasefire between Israel and Hamas has increased. The lower risk premium has led to a significant decline in oil prices.

Macro level: Federal Reserve's expectation of interest rate cuts decreases, fuel demand is suppressed

On May 1st, the Federal Reserve Board of the United States concluded a two-day monetary policy meeting, announcing that the target range for the federal funds rate would remain unchanged between 5.25% and 5.5%, and slowing down the pace of balance sheet reduction starting from June. This is the sixth consecutive meeting of the Federal Reserve since September last year to maintain interest rates unchanged.

The Federal Reserve stated that, given that inflation levels are still high, it aims to return to the 2% inflation target, and currently there is still some distance between the inflation level and the target value. The slim hope of interest rate cuts further suppressed fuel demand expectations, putting pressure on oil prices.

Last Friday, US non farm payroll data was released, showing that the slowdown in US employment growth in April exceeded expectations. Specifically, in April, non farm employment in the United States increased by 175,000. The growth rate in March was revised up to 315,000, with a previous value of 303,000. Previously, economists predicted that employment opportunities would increase by 243,000 in April. The US unemployment rate has remained below 4% for the 27th consecutive month. Although the non farm payroll data did not meet previous expectations and showed a slowing trend, the US economy is still performing strongly, and investors are generally betting that the first interest rate cut will only occur after September at the earliest.

SunSirs crude oil analysts believe that the recent significant decline in oil prices is mainly due to the concentrated release of bearish market news, which has suppressed the risk premium of crude oil. In the later stage, oil prices will still return to fundamentals, and the supply-demand game will still dominate. Before the Middle East ceasefire agreement is officially reached, the possibility of a deep decline in oil prices is also unlikely. At the same time, the oil producing country OPEC will hold a ministerial meeting on June 1st. If the oil price drops too much, it is not ruled out that OPEC may deepen its production reduction. In terms of demand, the peak summer driving season in the United States will stimulate gasoline demand. Overall, crude oil is under short-term pressure, and in the medium to long term, it is not ruled out to recover lost territory and continue to seek upward space.

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