WTI crude oil price is a key indicator of the global oil market and the health of the world economy. Recently, WTI crude oil price has been under pressure due to lower-than-expected inflation data from China and the US, as well as mixed sentiment and rising oil inventories.
China and US Inflation Data Disappoint
China and the US are the two largest oil consumers in the world, accounting for about 34% of global oil demand in 2020. Therefore, their economic performance and inflation expectations have a significant impact on WTI crude oil price.
In early May 2023, both countries released their inflation data for April 2023, which showed a slowdown in consumer price growth and a decline in producer price inflation.
China’s headline Consumer Price Index (CPI) eased to 0.1% year-on-year (YoY) from 0.7% prior, versus 0.3% expected. This was the lowest CPI reading since November 2022, reflecting weak domestic demand and falling food prices.
China’s Producer Price Index (PPI) slid to -3.6% YoY compared to -3.2% market consensus and -2.5% previous readings. This was the sharpest PPI contraction since June 2022, indicating deflationary pressures in the industrial sector and lower profitability for producers.
The US CPI also missed expectations, rising by 1.9% YoY in April 2023, down from 2.1% in March 2023 and below the market forecast of 2.2%. The core CPI, which excludes food and energy prices, increased by 1.6% YoY, matching the previous month’s rate but below the consensus of 1.8%.
The US PPI fell by 0.4% YoY in April 2023, after a 0.5% rise in March 2023 and against the market expectation of a 0.6% increase. The core PPI, which excludes food and energy prices, dropped by 0.7% YoY, following a 0.4% gain in March 2023 and missing the forecast of a 0.5% rise.
The weak inflation data from China and the US suggested that the global economic recovery was losing momentum and that the demand for oil was not as strong as anticipated. This weighed on WTI crude oil price, which fell by more than 4% in the first week of May 2023.
Mixed Sentiment and Rising Oil Inventories
WTI crude oil price was also influenced by mixed sentiment and rising oil inventories in the global market.
On one hand, WTI crude oil price was supported by some positive factors, such as:
– The successful nuclear fusion experiment by South Korea’s KSTAR facility, which achieved a temperature of over 100 million°C for 30 seconds for the first time. This breakthrough could pave the way for clean and unlimited energy sources in the future, boosting optimism and innovation.
– The ongoing vaccination campaigns and easing of lockdown measures in many countries, especially in Europe and North America, which improved mobility and fuel consumption.
– The supply disruptions caused by geopolitical tensions, such as the drone attack on Ilsky oil refinery in Russia, the explosion and fire aboard an oil tanker in the South China Sea, and the wildfire emergency declared by Alberta, Canada’s main oil-producing province.
On the other hand, WTI crude oil price faced some negative factors, such as:
– The surge of COVID-19 cases and deaths in India, Brazil, and other emerging markets, which dampened the outlook for global oil demand growth.
– The decision by Saudi Arabia to cut its June Arab Light crude prices for Asia by $0.10 per barrel, following a plunge in refining margins. This signaled that the world’s top oil exporter was facing weak demand from its largest market.
– The increase in US crude oil inventories by 8 million barrels in the week ending May 5th 2023, according to the Energy Information Administration (EIA). This was much higher than the market expectation of a 2 million barrel drawdown and indicated that supply was outpacing demand.
These mixed factors created uncertainty and volatility in WTI crude oil price, which fluctuated between $71.05 and $76.