USL - Crude oil rally loses steam as demand worries return

2023-04-05 17:45:36 ET

U.S. crude oil ticked lower Wednesday after four straight winning sessions, as this week's initial surge following OPEC's surprise production cut lacks staying power, with prices merely holding gains since spiking more than 6% on the first day.

WTI crude ( CL1:COM ) stuck close to $80/bbl, with the front-month contract for May delivery -0.1% to $80.61/bbl, while June Brent crude ( CO1:COM ) closed +0.1% to $84.99/bbl.

ETFs: ( NYSEARCA: USO ), ( BNO ), ( UCO ), ( DBO ), ( SCO ), ( USL ), ( DRIP ), ( GUSH ), ( USOI ), ( NRGU )

A " bullish tilted " report from the Energy Information Administration showed weekly declines in U.S. inventories of commercial crude, gasoline and distillates implied strong demand, but was offset by economic data that showed softer business activity last month.

The Institute for Supply Management's service sector activity index fell to a three-month low of 51.2% in March, and the second estimate of March's S&P U.S. Purchasing Managers Index increased less than expected .

Crude oil's recent rally "likely will be contained in the face of soft economic readings ," CIBC Private Wealth senior energy trader Rebecca Babin said, adding Brent may outperform in the short term as Asian demand remains strong and OPEC's cuts more directly impact the global benchmark.

However, energy stocks easily outperformed the broader market Wednesday, led by refiners Phillips 66 ( NYSE: PSX ) +6.2% , Valero Energy ( VLO ) +6% and Marathon Petroleum ( MPC ) +5.5% .

Goldman Sachs reacted to the OPEC+ production cut by raising its forecast for Brent crude this year to $95/bbl and $100/bbl in 2024, but Morgan Stanley cut its Q3 Brent price outlook to $90, saying OPEC's move reveals a weak outlook for the global oil market .

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