Oil prices rebounded from a three-year low on Thursday as investors resorted to lower level buying after Brent fell sharply in the previous session.
Market sentiment in the oil sector has taken a pessimistic turn, evidenced by the significant drop in Intercontinental Exchange’s Brent crude oil prices.
Wednesday’s trading saw a decline of nearly 2.5%, with prices settling below the critical $70 per barrel mark.
This downward trajectory even led to a brief period where prices reached their lowest point in three years, signaling a concerning trend for oil market participants.
Analysts at ING Group, said in a note:
Rising OPEC supply and prospects for further increases, combined with ever-present tariff uncertainty, pushed the market lower.
At the time of writing, the Brent crude oil contract was at $69.43 per barrel, up 0.2% from the previous close.
The West Texas Intermediate crude oil price on the New York Mercantile Exchange was also up 0.3% at $66.54 per barrel.
WTI and Brent crude oil prices have fallen to their lowest levels since May 2023 and December 2021, respectively, following a four-session decline.
Brent crude fell 6.5% to its lowest point since December 2021 on Wednesday, while WTI crude fell 5.8% to its lowest point since May 2023.
According to Geojit Financial Services, the weak outlook in the oil market is likely to continue for the rest of Thursday.
Tariff threats ease pressure on prices
The initial decline in the market was mitigated as the United States announced its decision to exempt automakers from the previously imposed 25% tariffs.
This move instilled optimism that the potential adverse effects of the ongoing trade dispute could be lessened.
Furthermore, an insider source privy to the discussions revealed to Reuters that President Donald Trump is contemplating the removal of the 10% tariff currently levied on Canadian energy imports, including crude oil and gasoline, that adhere to the existing trade agreements.
This potential decision further contributes to the easing of trade tensions and the prospect of a less severe impact on the overall market.
Weak oil prices weigh on producers
The recent decline in oil prices is creating significant challenges for US oil producers, making it economically unfeasible for them to continue with aggressive drilling and production activities.
This is evident in the current price of WTI crude oil, which is trading below $67 per barrel.
Furthermore, the forward prices for WTI are even lower, indicating that the market expects oil prices to remain depressed in the future.
This creates a challenging environment for US oil producers, as they are faced with the prospect of lower revenues and profits.
As a result, many producers may be forced to scale back their drilling and production activities, which could lead to a decline in US oil production.
“Recent price weakness makes it difficult for US producers to “drill, baby, drill,” ING Group analysts said.
The current trading price of around $63 per barrel for the 2026 calendar reduces the motivation for producers to ramp up drilling operations, according to ING.
ING analysts added:
If anything, we’re likely to see a bigger pullback in activity. Producers need, on average, a $64/bbl price level to drill a new well profitably, according to the Dallas Federal Reserve Energy Survey.
US crude stockpiles
US crude oil inventories increased more than anticipated last week due to seasonal refinery maintenance, according to the Energy Information Administration.
Meanwhile, gasoline and distillate stockpiles decreased because of a rise in exports.
The EIA reported that crude inventories increased by 3.6 million barrels to 433.8 million barrels in the week. This increase significantly surpassed the analysts’ expectations of a 341,000-barrel rise in a Reuters poll.
Additionally, the WTI delivery hub’s stock levels reached their highest point since November due to a 1.12 million barrel increase in crude oil stocks at Cushing.
“Lower refinery rates contributed to the build, with utilisation rates falling by 0.6pp, and crude inputs dropping by 346k b/d week on week,” ING Group said.
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