EIA: Crude Oil Prices Set for a Rebound on Low Inventories

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--The price of crude oil had been on a steady retreat for much of July due to global economic concerns, though data analysts at the U.S. Department of Energy expect a rebound by the end of the year.

The price for Brent crude oil, the global benchmark for the price of oil, was trading around $78 per barrel early Wednesday. It had traded as high as $85 per barrel in July, but lost nearly 10% of its value during the month.

Brent dropped some 3.4% on Friday alone after a dismal jobs report stoked concerns about a recession in the U.S. economy, the world's largest. The jobless rate in July hit 4.3%, up from 4.1% to bring the three-month average to more than a half point above year-ago levels.

That triggered the so-called Sahm Rule, named after economist Claudia Sahm who predicted every recession since the 1970s. The rule states that if the three-month average jobless rate is a half-point above the lowest point over the previous 12 months, that economy has entered a recession.

White House Press Secretary Karine Jean-Pierre said Tuesday that President Joe Biden's administration had seen some expected volatility in the economy.

"Our broader economy remains resilient," she said. "And we see that because of the data, obviously, that's been coming out over the past not just couple of months but the past couple of years."

China's economy, the second largest after the United States, could be slowing as well. Recent import data show China taking in less foreign products than during the prior year, suggesting the post-pandemic rebound initially expected has failed to materialize.

"Most of the reduction in our oil consumption forecast is in China, where we expect slowing economic growth will continue to reduce diesel consumption," analysts at the U.S. Energy Information Administration (EIA), the statistical arm of the Energy Department, wrote in their monthly market report for August.

That said, EIA revised its forecast for Brent, pointing to bullish conditions for the rest of the year.

Brent averaged $81 per barrel in July. EIA expects Brent to return to a range of between $85 per barrel and $90 per barrel by the end of the year. The previous high-end point was $88 per barrel. The agency cited low global oil inventories as the factor behind the expected recovery.

Over the seven-day period ending July 26, EIA reported commercial inventories declined by 3.4 million barrels from the previous week, leaving U.S. commercial stocks at about 4% below the five-year average for this time of year.

Elsewhere, a geopolitical risk premium could return to the market amid concerns that Iran is on the cusp of responding to the Israeli assassination of the political leader of Hamas on its soil. The Iranian-backed Hezbollah group in Lebanon too could respond to Israeli attacks on its leaders, triggering a broader regional conflict.

Dryad Global, a maritime security group, warned this week that vessels associated with Israel should avoid traveling near Yemen or the Persian Gulf due to the risk of attack. The U.S. military said Tuesday it shot down three drones allegedly fired by the Houthi rebel group in Yemen, which also draws on support from Tehran.

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