Brent price failed to break above the $70 level on Wednesday, as buyers' appetite is still constrained by some demand risks. Concerns about demand in India as well as expectations that OPEC will soon begin to lift output restrictions weigh on prices. Recovery of Iranian supply also makes growth more cautious. Although it now seems that the market will be able to absorb new supply, there are risks that the outlook for demand will become less optimistic, which will lead to a more fragile balance in the market.

Saudi Arabia has announced its June OSP prices and, given OPEC's concerns about demand and upcoming production increases, prices for Asia have been cut an additional 10 cents. The Saudis have also lowered prices for other regions, for example for Europe the over-benchmark premium has been reduced in all grades. However, US prices have been raised. The multidirectional movement of price discounts for different regions suggests that OPEC evaluates the prospects for a recovery in demand in different ways, and also takes into account different levels of risks.

The EIA report showed that oil stockpiles in the United States fell by 7.99 million barrels in the reporting week, which significantly exceeded the forecast of -2 million barrels. This strong decline was driven by several factors, in particular increased capacity utilization rates of refineries. Now it is at its highest level since March last year. Oil exports increased by 1.58 mln bpd to 4.12 mln bpd. Only four times in history US oil exports topped 4 million bpd what looks like an indication of a really strong near-term oil demand picture, especially for US supply.

Technically, the corrective rally in oil after breakout of the key trend line took place in a narrowing channel, which indicates a keen buying pressure. The price approached the March high however potential breakout of the main resistance line is likely to be short-lived (false breakout), since risks in the news background are shifted towards neutral and negative events (growth in Iranian output, US shale oil recovery, planned increase in production OPEC, etc.). Most of the positive on the demand side has already been priced in by the market in one way or another:

Yesterday data on ADP and ISM in the US were not as strong as expected which became a major disappointment. The growth of jobs according to ADP was 742K (forecast 800K), the ISM index did not live up to expectations:

With this data in mind, optimism about Friday's NFP declined. This eased pressure on long-term yields and the dollar. The yield on 10-year US Treasuries retreated as less strong labor market growth would mean less acceleration in inflation – the biggest threat of real bond returns currently:

It is clear that the risk of a weaker NFP report has risen, so the markets could start to brace for a negative surprise on Friday. If the report does turn out to be so, the bearish trend in the dollar is likely to resume, as more inconsistencies will appear in the story with higher inflation in the US.

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