Brent Crude is Gaining Ground at $80-82

Brent crude prices are neutral around $83 per barrel. Although prices dipped by 2.2% to $81.44 per barrel on May 15, they managed to recover due to slowing inflation in April and declining oil inventories in the United States.

Consumer prices fell to 3.4% year-over-year (YoY) in April compared to 3.5% in March. The Core Consumer Price Index (CPI), excluding volatile food and energy prices, decreased to 3.6% YoY from the previous 3.8%. This marks the first slowdown of prices in the U.S. this year and may lead to interest rate cuts by the Federal Reserve as early as September. According to the CME FedWatch Tool, the likelihood of such a scenario increased to 53.1% from 49.4% after the inflation figures were announced. This baseline scenario supports oil prices.

The International Energy Agency (IEA) downgraded its outlook for oil consumption by 140,000 barrels per day to 1.1 million barrels per day (bpd), which is negative for oil prices. However, the U.S. Energy Information Administration reported a significant decrease in oil inventories, down by 2.5 million barrels, surpassing the consensus expectation of a 400,000-barrel decline. Overall, inventories posted the second consecutive decline, reaching the lowest level of the month, a situation not observed since March.

The United States Oil Fund (USO) reported net capital outflows of $75.9 million last week but saw net inflows of $22.5 million during the first three days of this week. A slowdown in the American economy, highlighted by the IEA, poses a challenge for the oil market. This is further confirmed by weak retail sales, which were flat in April, down from a 0.6% month-over-month (MoM) increase in March. Nevertheless, this economic cooling is expected to be offset by the anticipated easing of monetary policy by the Fed later this year, ongoing oil production cuts by the Organization of Petroleum Exporting Countries and its allies (OPEC+), and the ongoing conflict in the Middle East. These factors contribute to steady oil prices that are balanced above $80.00-82.00 per barrel of Brent crude.

From a technical standpoint, this balance should result in a bounce of oil prices towards $89.00-91.00 per barrel. With the OPEC+ meeting scheduled in June and the Middle East conflict bearing risks of expansion, there are potential factors that could drive oil prices up. However, without immediate catalysts, prices are likely to remain flat above the support at $80.00-82.00 per barrel.