By Rowena Edwards
LONDON (Reuters) – Oil prices steadied on Thursday after the previous day’s price drop reversed the supportive impact of a surprise cut to OPEC production targets this month.
edged up by 25 cents, or 0.32%, to $77.94 a barrel by 1209 GMT while U.S. West Texas Intermediate crude rose 19 cents, or 0.26%, to $74.49.
Prices stabilised after Russian Deputy Prime Alexander Novak described oil markets on Thursday as balanced.
The OPEC+ group of leading oil producers does not see the need for further oil output cuts but is always able to adjust its policy, Novak said.
Oil prices dropped almost 4% on Wednesday as jitters about a U.S. economic downturn overshadowed a larger than expected fall in inventories. [EIA/S]
U.S. capital goods spending fell more than expected, the latest data showed, and weak risk sentiment spread from the banking sector after First Republic Bank (NYSE:)’s continued slump.
Analysts see weak refinery margins as a major contributor to the oil price decline, with oil broker PVM’s Tamas Varga pointing to and gasoil as “the main possible culprit for the outsized weakness”.
“Inventories in this product are somewhat reluctant to deplete, possibly due to resilient Russian exports,” Varga said.
Russia has increased exports of refined products despite an EU embargo and oil price cap, sources told Reuters.
Falling refinery profit margins could lead to runs being cut and a further reduction in crude demand, said Ole Hansen, head of commodity strategy at Saxo Bank.
“For now, position adjustments will set the agenda, but with an overall negative bias until refinery margins show signs of stabilising,” Hansen said.
Backwardation in the Brent futures curve has flattened to about $1.75/bbl, having touched $4/bbl on April 12.
Backwardation, when prices for a front-month loading contract are higher than contracts for later loadings, typically indicates tight supply.
Markets will look for direction from the first quarterly print of euro zone gross domestic product growth, which is due on Friday. The data could affect monetary policy decisions by the European Central Bank when it meets on May 4.
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