Oil Prices End Mixed After EIA Report, Despite Trade Deal Boost and Dollar Slump
Crude Oil Prices End Mixed, Undercut by Cushing Supply Build
The crude oil market experienced a mixed outcome on Wednesday, with September WTI crude oil (CLU25) closing down -0.06 (-0.09%) and September RBOB gasoline (RBU25) rising +0.0187 (+0.90%). This development occurred despite the fact that both crude oil and gasoline prices have been subject to various market forces that could either support or undermine their value.
A key factor weighing on crude oil prices is the build in supplies at Cushing, the delivery point for WTI futures, which has now happened for a third consecutive week. This accumulation of inventory can serve as an overhang, making it more difficult for prices to rise, even when demand is increasing or supply chain disruptions are occurring. In contrast, the fall in crude oil prices was somewhat mitigated by the release of weekly EIA (Energy Information Administration) data showing that US crude inventories fell -3.17 million bbl, exceeding expectations.
US Economic News Favors Lower Energy Demand
Negative news from the US economic sector on Wednesday further contributed to lower energy demand and, consequently, lower crude oil prices. Existing home sales for June posted a decline of -2.7% m/m to a 9-month low of 3.93 million, which was weaker than anticipated at -0.7% to 4.00 million. This downturn in existing home sales serves as an indicator that economic activity and household consumption are not increasing as expected.
Iraq’s Plan to Boost Crude Exports Supports Oil Market
However, a different development offers support for the oil market. Iraq has announced its intention to resume crude exports through the Iraq-Turkey pipeline from its northern Kurdish region. This move is expected to increase supplies by 230,000 barrels per day (bpd), making it a welcome addition to global supply.
The Iraqi government’s plan aims to satisfy Iraq’s crude market with this increased production capacity. As one of OPEC’s largest oil producers, Iraq’s decision can be viewed as a positive factor for the global oil market. Moreover, the European Union has maintained sanctions on Russian oil due to its aggression against Ukraine. These ongoing restrictions contribute to carryover support for energy prices.
Concerns About Oil Glut and Global Demand Weigh on Prices
However, concerns persist regarding a potential oil glut in the second half of this year. On July 5, OPEC+ agreed to increase crude production by 548,000 barrels per day (bpd) beginning August 1. This move exceeded expectations and contributes to growing worries about supply levels potentially outpacing demand.
US Crude Oil Production Falls
The release of the weekly EIA report on Wednesday showed that US crude oil inventories as of July 18 were -8.6% below the seasonal 5-year average. Meanwhile, US gasoline inventories were +0.2% above the 5-year seasonal average, and distillate inventories were -18.5% below their respective averages.
US crude oil production in the week ending July 18 fell -0.8% w/w to 13.273 million bpd, marginally below the record high of 13.631 million bpd reported for December 2024.
Supportive Factors
On a positive note, the dollar index (DXY00) declined to a two-week low on Wednesday, contributing to supportive market forces for energy prices. Furthermore, the agreement between the US and Japan on a trade deal eases concerns about trade restrictions and potentially supports global demand.
The International Energy Agency has highlighted the risk of inventory accumulation at a rate of 1 million bpd and warned that the global crude oil market faces a surplus by Q4-2025 equivalent to 1.5% of global crude consumption.
Impact on Oil Prices
In light of these developments, Wednesday’s US economic news weighed against energy demand and contributed to lower crude oil prices. However, other market factors, including Iraq’s plan to boost exports and ongoing sanctions on Russian oil, support the oil market.
