On April 17th, international crude oil futures plummeted by over 3%. The settlement price of the main WTI crude oil futures contract in the United States was $82.69 per barrel, a decrease of $2.68 or 3.2%. The settlement price of the Brent crude oil futures main contract was $87.29 per barrel, a decrease of $2.73 or 3.0%. The main reason is the unexpected increase in US crude oil inventories, weakened demand expectations, and the flattening of conflict risk premiums.

EIA: US crude oil inventories significantly increase by 2.7 million barrels

According to foreign sources on April 17th, a report released by the US Energy Information Administration (EIA) on Wednesday showed a significant increase in US crude oil inventories last week. Data shows that as of the week ending April 12th, US crude oil inventories increased by 2.7 million barrels, while analysts had previously expected an increase of 1.4 million barrels. In addition, the utilization rate of refinery capacity in the United States has decreased by 0.2 percentage points. Meanwhile, EIA data shows that gasoline demand in the United States has once again disappointed, with the four week average dropping to the lowest level in the same period since 2022.

Mitigation of geopolitical conflict risk suppresses crude oil risk premium

After Iran launched an unprecedented missile and drone attack on Israel last weekend, the market closely monitored how Israel would react. However, the current signal given by the market is that the possibility of Israel retaliating fiercely is unlikely, and the risk of conflict is reduced. Therefore, the market expects that the possibility of the US escalating sanctions on Iran's oil exports will also decrease. As the market's concerns slow down, the positive international oil supply has dissipated, to some extent smoothing out the risk premium of crude oil.

Expected uncertainty in future oil demand

The signals previously released by the Federal Reserve to the market have caused widespread concern among investors that the rate cut cycle may not come so quickly. On Tuesday, Federal Reserve Chairman Powell did not specify the timing of the rate cut, and the high interest rate environment in the United States may continue for a longer period of time. The rising borrowing costs will form a strong pressure on demand. In addition, although China's economic growth in the first quarter of 2024 was faster than expected, market participants are still concerned about China's future demand performance. Especially in the context where it is difficult to see any signs of easing the trade friction between China and the United States in the short term.

Future Market Forecast

SunSirs crude oil analysts believe that the current environment for crude oil is relatively complex, and the performance of oil prices is also relatively stagnant and anxious. Macro and demand are suppressing oil prices in the short term, and the space for further upward movement of oil prices is being suppressed. In addition, given that the current geopolitical tensions have not escalated, crude oil has the potential to mitigate risk premiums and reshape valuation expectations. But the risk has not been lifted, coupled with the start of the North American driving season, gasoline demand is expected to rise, which will provide support for oil prices. Overall, the supply and demand game in the oil market will intensify in the short term, and there is a greater possibility of oil prices maintaining high volatility.

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