Source: Finance Association

WTI oil prices closed down more than 3% on Wednesday due to the multiple effects of rising US commercial crude oil inventories, the strengthening of the US dollar, and easing the risk of the geopolitical situation, the biggest one-day decline in nearly a month.

On Wednesday, Brent crude oil's June futures closed down $2.73 to $87.29 a barrel, or 3%; U.S. crude oil futures for May closed down $2.67 to $82.69 a barrel, or 3.1%, the biggest drop since March 20.

There are multiple negative factors behind the decline in oil prices.

Mitigating the risk of geopolitical conflicts

First, the geopolitical risks brought about by the conflict between Iraq and Israel have abated.

After Iran launched an unprecedented missile and drone attack on Israel over the weekend, the market is watching closely how Israel responds to Iran's attacks.

Analysts expect that Iran's attack on Israel does not seem to have caused Israel to retaliate violently, nor will it prompt the US to impose major sanctions on Iran's oil exports. As this concern in the market abated, international oil prices lost a major support.

Oil broker PVM analyst John Evans (John Evans) said traders are “closing part of the war premium” because Israel has shown restraint so far.

Andrew Lipow (Andrew Lipow), president of Lipow Oil Associates, said that hostilities in the Middle East have not caused supply disruptions, and Israel is unlikely to respond by attacking Iran's oil production or export facilities.

Manish Raj, managing director of Velandera Energy Partners, said: “The theory that tension between Iran and Israel disrupts oil supplies has failed. The outcome [of this conflict] is likely to be peace while oil continues to fall.

Additionally, US House Speaker Mike Johnson said on Wednesday that the text of the four bills providing aid to Ukraine, Israel and the Indo-Pacific region will be submitted “soon.” Oil prices continued to fall after he announced progress on the aid bill.

“The market is awaiting signs of easing tension in the Middle East, thus selling off (crude oil)... The progress of these laws and the three-day delay in Israel's response to Iran have all contributed to the drop in oil prices.” John Kilduff (John Kilduff), a partner at Again Capital LLC in New York, said.

Increased US inventories and higher dollar

Another round of more direct impact on oil prices came from US crude oil inventories: US government data last night showed that US EIA crude oil inventories increased by 2.73 million barrels to 460 million barrels last week, almost double the 1.4 million barrels expected by market analysts.

Meanwhile, according to EIA data, US gasoline demand was once again disappointing, and the four-week average fell to a low level in the same period since 2022.

The third major factor affecting the price of crude oil is the rise in the US dollar.

On Tuesday EST, many senior Federal Reserve officials, including Federal Reserve Chairman Powell, no longer provided any guidance on when interest rates might be cut, dashing investors' hopes for a sharp interest rate cut this year, and the US dollar strengthened accordingly, putting pressure on oil prices.

Furthermore, the UK's inflation rate in March was slightly higher than expected, which indicates that the Bank of England's first interest rate cut may also be later than previously anticipated. However, inflation in the Eurozone slowed last month, strengthening expectations that the ECB would cut interest rates in June.

Jim Ritterbusch, president of Galena Ritterbusch and Associates in Illinois, said, “Factors such as the strengthening trend of the US dollar and the increase in crude oil inventories have triggered some bearish sentiment.”

editor/tolk