Crude oil price outlook as the US driving season nears

Crude oil price has bounced off Tuesday’s lows following an improved demand outlook. Brent futures are back above $113.00 per barrel to $113. 55 as at 08:12 a.m GMT. At the same time, WTI futures are trading at $114.44.

Fundamentals

Crude oil price is finding support in the unexpected draw of US stockpiles. Data released by the American Petroleum Institute (API) late on Tuesday showed that crude oil inventories dropped by 2.445 million barrels in the week that ended on 13^th May. Analysts had expected an increase of 1.533 million barrels, a slight decline from the prior week’s build of 1.618 million. Investors are now waiting for a confirmation of this trend in the form of EIA inventory data later in Wednesday’s session.

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In the US, the summer season is nearing; which signals that the driving season is at the horizon. This aspect is set to support oil demand at a time when gasoline prices are at a record high. The decision by President Biden’s administration to release a significant amount of crude oil from the Strategic Petroleum Reserves (SPRs) has not been suffice to deal with the soaring prices.  

Indeed, gasoline prices both at the pump and future contracts are at an unprecedented high. Throughout the US, gasoline prices at the pump are averaging above $4 per gallon. In California, the amount has exceeded $6 per gallon.

In addition to the tight US market, the predicted easing of COVID-19 lockdowns in China has further boosted the crude oil demand outlook. Notably, the restrictive measures enacted the leading consumer of oil in the world have been behind the price swings that have defined the oil market for about two months now.

Shanghai, China’s financial hub, has recorded zero new cases outside of the government’s quarantine for the third day in a row. While the data will likely lead to the unwinding of the imposed stringent curbs, there has been outbreaks of the virus in other parts of the Asian country. This includes its northern port area of Tianjin, Sichuan’s city of Guang’an, and Beijing’s district of Fengtai.

Amid these bullish factors, I expect crude oil price to continue hovering around $103.00 as investors await further cues from EIA’s inventory data. Bullish figures may push Brent futures to $116.65. On the lower side, the psychological level of $110 will remain a support zone worth watching for the remainder of the week.