Volatile Oil Prices: Equity Markets and Inflation Dampen Uncertain Demand Outlook

Oil prices have remained elevated this year, supported by supply cuts from OPEC+ and tensions in the Middle East. However, prices have retreated from recent highs as geopolitical risks have diminished. Despite this, options continue to show a bearish tilt toward puts, and the US Oil Fund, the largest oil exchange-traded fund, experienced its largest daily outflow on record.

The demand outlook for oil remains uncertain, with weakness seen in some refined products. Profit margins for converting crude oil into diesel in Asia are near their lowest level in almost a year. The market continues to be influenced by a variety of factors, making it challenging to predict future price movements.

Crude prices have been trading in a narrow range due to strengthening equities markets which provided support to crude futures. However, this market sentiment was dampened by a US inflation measure. Despite this, oil markets are still searching for an equilibrium price due to the lack of significant geopolitical news or data releases.