Futures Movers: Oil prices slip back as demand concerns outweigh support from a weekly drop in U.S. crude supplies

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Oil futures turned lower Wednesday, as concerns over a slowdown in energy demand and uncertainty over if and when Europe will ban Russian oil imports outweighed earlier support from an eight million-barrel weekly drop in U.S. crude supplies.

Price action
  • West Texas Intermediate crude for May delivery CL.1, -0.97% CLK22, -0.97% fell 70 cents, or 0.7%, to $101.86 a barrel on the New York Mercantile Exchange ahead of the contract’s expiration at the end of the session. The most actively traded June contract CL00, -0.92% CLM22, -0.92% was down 71 cents, or 0.7%, at $101.34 a barrel.
  • June Brent crude BRN00, -1.31% BRNM22, -1.31%, the global benchmark, was down $1.12, or 1%, at $106.13 a barrel on ICE Futures Europe. Brent and WTI futures both fell more than 5% on Tuesday.
  • May gasoline RBK22, -0.57% shed 0.6% to $3.226 a gallon, while May heating oil HOK22, +1.48% added 1.3% to $3.912 a gallon.
  • May natural gas NGK22, -4.10% traded at $6.875 per million British thermal units, down 4.2% for the session, but holding onto a month-to-date rise of over 20%.
Market drivers

Oil prices are selling off because of some demand concerns, even as the latest inventory data “showed that [U.S. petroleum] demand had improved in almost every category,” said Phil Flynn, senior market analyst at The Price Futures Group.

The International Monetary Fund on Tuesday said the war in Ukraine will lead to a significant slowdown in global economic growth this year.

There is also some speculation that traders are rolling some of their trades into futures contracts at the back end of the curve — “selling the front end and buying the back end partly” because there’s some talk that European Union sanctions on Russian oil will happen later in the year and not sooner, Flynn told MarketWatch.

The moves for oil come two years to the day when WTI crude futures settled at a negative $37.63 a barrel on Nymex. That’s when the market took a hit from a glut of supplies built up on the back of a price war between Saudi Arabia and Russia, a drop in demand due to the pandemic and a contract expiration.

Read: Where oil stands 2 years after its historic drop below zero dollars a barrel

Supply data

Oil prices traded higher for a while shortly after the Energy Information Administration reported Wednesday morning that U.S. crude inventories fell by 8 million barrels for the week ended April 15. That was the largest weekly decline since at least the week ended April 30, 2021, when the EIA reported supplies also fell by 8 million barrels.

The EIA was expected to show crude inventories up by 2.2 million barrels, according to Marshall Steeves, energy markets analyst at S&P Global Commodity Insights. The American Petroleum Institute on Tuesday reported a 4.5 million-barrel decline, according to sources.

The drop in crude inventories reversed nearly all of last week’s 9.4 million-barrel build, despite a “whopper of a 4.7 million-barrel release” from the Strategic Petroleum Reserve and production ticking higher to 11.9 million barrels per day, said Matt Smith, lead oil analyst, Americas, at Kpler, in emailed commentary.

“Higher refining activity, low imports and strong exports have been the driver behind the large draw,” he said. “Strong exports have been driven by a pull to Europe and we should expect strength in the weeks ahead.”

The EIA reported weekly inventory declines of 800,000 barrels for gasoline and 2.7 million barrels for distillates. Steeves pegged forecasts at a 1.2 million-barrel decline for gasoline and 1 million-barrel fall for distillates.

The inventory numbers were “very surprising with large draws across the board,” Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch. The supply declines, along with the potential for Europe to ban Russian oil, should lead prices to “grind higher and any weakness should be bought.”

This article was originally published by Marketwatch.com. Read the original article here.

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