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Caution follows rally
Inventory jump, possible return of Iran oil hit trade agreement rally
Steve Sutherlin Petroleum News
Alaska North Slope crude slid 64 cents May 14 to close at $69.07 per barrel, while West Texas Intermediate fell 52 cents to close at $63.15 and Brent fell 54 cents to close at $66.09.
A surprise jump in U.S. crude inventories spurred the losses, causing the benchmarks to give back a chunk of the previous day's gains from a rally sparked by an agreement between the United States and China to reduce tariffs on each other.
U.S. commercial crude oil inventories for the week ended May 9 leapt 3.5 million barrels higher from the week prior, to 441.8 million barrels -- 6% under the five-year average for the time of year, the U.S. Energy Information Administration said in its weekly petroleum report released May 14.
Crude inventories, however, were seen as likely to fall for a third consecutive week as refineries raise their capacity use, according to a survey by The Wall Street Journal. Analysts answering the poll -- on average -- expected crude stocks to fall 1.8 million barrels to 436.6 million barrels.
Total motor gasoline inventories decreased by 1 million barrels over the week to 224.7 million barrels -- 3% below the five-year average for the time of year, the EIA said. Distillate fuel inventories decreased by 3.2 million barrels to 103.6 million barrels -- 16% below the five-year average for the season.
Analysts in the WSJ poll expected gasoline inventories to fall by 1.4 million barrels to 224.3 million barrels, and for stocks of distillate fuels to slip by 100,000 barrels.
The May Monthly Oil Market Report released by the Organization of the Petroleum Exporting Countries May 14 did little to rally crude traders, striking a cautious tone and revising the global economic growth forecast for 2025 down slightly to 2.9%, while leaving the global oil demand forecast for 2025 unchanged from the April report.
OPEC said it expects oil supply from non-OPEC+ countries, to increase by 800,000 barrels per day in 2025, down 100,000 bpd from the April MOMR forecast.
Trade agreements ignite crude rally On May 13, crude prices capped a four-day rally on positive trade developments with a surge as China and the United States deescalated their tariff war. ANS leapt $1.55 to close at $69.71, WTI leapt $1.72 to close at $63.67 and Brent leapt $1.67 to close at $66.63.
ANS jumped $1.04 May 12 to close at $68.16, as WTI jumped 93 cents to close at $61.95 and Brent jumped $1.05 to close at $64.96.
ANS moved upward May 9, adding 88 cents to close at $67.12, while WTI jumped $1.11 to close at $61.02 and Brent jumped $1.07 to close at $63.91.
May 8 was a day of sizzling gains for crude prices, as well as for U.S. equities and other risk assets after the White House announced a breakthrough trade agreement with Britain.
ANS surged $1.93 on the day to close at $66.24, as WTI vaulted $1.84 to close at $59.91 and Brent leapt $1.72 to close at $62.84.
From Wednesday to Wednesday, ANS skyrocketed $4.76 from its May 7 close of $64.31 to a close of $69.07 on May 14.
ANS closed at a $2.98 premium over Brent May 14, while notching a $5.94 premium over WTI.
Rally loses steam The crude rally appeared to be losing steam in early Asian trading May 15 as Petroleum news went to press. WTI and Brent each were down by more than two dollars.
The downward move reflected excess supply concerns after a top Iranian official told NBC News May 14 that Iran is willing to agree to a deal with the U.S. in exchange for lifting of economic sanctions.
Ali Shamkhani, political, military and nuclear adviser to Iranian Supreme Leader Ayatollah Ali Khamenei, said Iran would commit to never making nuclear weapons, giving up stockpiles of highly enriched uranium, agree to enrich uranium only to lower levels needed for civilian use, and allow international inspectors to supervise the process, in exchange for the immediate lifting of all economic sanctions on Iran.
"Fresh selling was triggered by expectations that a U.S.-Iran nuclear deal would ease recently tightened U.S. sanctions on Iran, potentially loosening the global crude supply-demand balance," Yuki Takashima, economist at Nomura Securities told Reuters.
Saudi Arabia fully supports the U.S.-Iran nuclear talks and hopes for positive results, the kingdom's foreign minister Prince Faisal bin Farhan Al-Saud said May 14.
The scenario could take a sharply different trajectory if Middle East hostilities expand, however.
The Center for Strategic and International Studies in a May 12 paper said that Iran's Kharg Island export terminal and Iran's largest refineries, are within range of Israel's strike capabilities, as demonstrated by its long-range attacks on Iranian targets in October.
"The potential for oil market whiplash -- from recent downturn to potential spike -- comes not from an Israeli attack on Iranian oil, but from Iran's potential response," the CSIS said. "OPEC can easily cover an outage of Iran's daily exports of 1.5 million barrels, but there is no offset to a potential Iranian closure of the Strait of Hormuz, through which 20 million barrels of oil transit each day."
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