By Rowena Edwards
LONDON (Reuters) – Oil prices were steady on Thursday after a price drop the previous day reversed the supportive impact of a surprise OPEC production cut announced this month.
Brent crude was trading at $77.72 a barrel, up 3 cents, or 0.04%, by 1033 GMT, while U.S. West Texas Intermediate crude rose 1 cent or 0.01% to trade at $74.31.
Prices stabilised as 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. downturn overshadowed a larger-than-expected fall in U.S. crude inventories. [EIA/S]
U.S. capital goods spending fell more than expected in the latest data overnight, and weak risk sentiment spread from the banking sector following First Republic Bank’s continued slump.
Analysts see weak refinery margins as a major contributor to the oil price decline, with Tamas Varga of oil broker PVM pointing to heating oil and gasoilin 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 around $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 eurozone gross domestic product growth, due on Friday. The data could impact monetary policy decisions by the European Central Bank, which holds a policy meeting on May 4.