Oil Holds Near Three-Month Low at $76.89 as Market Weakens Ahead of OPEC+ Meeting

US crude inventories rise by 2.5 million barrels, pushing Brent crude to a three-month low of $81.36.

By Barry Stearns

5/23, 20:02 EDT
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Key Takeaway

  • Oil prices near three-month lows with WTI at $76.89 and Brent at $81.36, signaling market weakness ahead of US summer driving season.
  • Despite OPEC+ output cuts, futures have eased since mid-April; Brent's prompt spread nears bearish contango structure.
  • OPEC+ meeting on June 1 expected to extend current output curbs into the second half of the year.

Rising US Crude Inventories

Oil prices have been under pressure as the American Petroleum Institute (API) reported a notable increase in US crude inventories. West Texas Intermediate (WTI) dropped for the fourth consecutive session, nearing $77 a barrel, while Brent crude settled at a three-month low of $81.36. According to sources familiar with the API data, crude stockpiles rose by 2.5 million barrels last week, with additional increases in Cushing, Oklahoma supplies. This rise in inventories has contributed to a bearish sentiment in the market, despite oil futures being up around 9% this year due to OPEC+ supply cuts. The prompt spread for Brent is approaching a bearish contango structure, indicating potential oversupply. Rob Thummel, a portfolio manager at Tortoise Capital Advisors, noted that “oil prices are stuck in a narrow range until the next catalyst,” reflecting the market's current uncertainty.

Geopolitical Tensions Drive Oil Prices

Oil prices have been influenced by recent geopolitical tensions, particularly in Russia and the Middle East. Brent futures traded near $84 a barrel, while WTI hovered just below $80. Over the weekend, a Ukrainian drone strike targeted the Slavyansk oil refinery in Russia's Krasnodar region, forcing the facility to halt operations. This refinery processes approximately 80,000 barrels per day and has been a repeated target, with previous attacks in March and April. Additionally, a missile attack on a China-bound oil tanker in the Red Sea highlighted the fragility of global energy supply chains. Despite these tensions, oil prices have cooled since mid-April, with implied volatility near the lowest since 2019. The geopolitical risks add a layer of complexity to the market, which is already grappling with supply and demand dynamics.

Impact on Global Energy Markets

The disruption at the Slavyansk refinery has significant implications for global energy markets. The halt in operations could affect crude oil prices, given the refinery's substantial processing capacity. The US has expressed concerns over Ukraine's strategy of targeting Russian refineries, emphasizing the broader risks to the global energy supply. US Defense Secretary Lloyd Austin stated, “Those attacks could have a knock-on effect in terms of the global energy situation. Ukraine is better served in going after tactical and operational targets that can directly influence the current fight.” The recent attacks come at a time when Russia's refinery runs had shown signs of recovery in the first half of May, but the renewed drone strikes could reverse these gains, adding further volatility to the market.

Oil Tanker Attack Near Yemen

An oil tanker was struck by a missile off the coast of Yemen, according to a report by Agence France-Presse. The incident occurred near the Bab el-Mandeb strait, approximately 10 nautical miles southwest of the city of Mokha. The maritime security firm Ambrey confirmed the attack, stating that the Panama-flagged crude oil tanker was hit by a missile, resulting in a fire in the steering gear flat. The United Kingdom Maritime Trade Operations (UKMTO) also reported that the vessel sustained slight damage but continued to its next port of call with the crew safe. The Iran-backed Houthi militants have intensified their attacks on warships and merchant vessels in the Red Sea since mid-November, primarily targeting ships linked to Israel, the US, and the UK. This escalation has significant implications for global trade and energy markets, as the Red Sea remains a critical passage for oil and other goods.