Oil futures traded higher Wednesday after the U.S. government reported a more than 6 million-barrel weekly decline in domestic gasoline supplies, as traders awaited the Federal Reserve’s latest decision on interest rates.
Price action
-
West Texas Intermediate crude for May delivery
CL00,
+1.02% CLK23,
+1.02%
rose 27 cents, or 0.4%, to $69.94 a barrel on the New York Mercantile Exchange. -
May Brent crude
BRN00,
+1.05% BRNK23,
+1.05%
was up 33 cents, or 0.4%, at $75.65 a barrel on ICE Futures Europe. -
Back on Nymex, April gasoline
RBJ23,
+2.13%
tacked on 1.6% to $2.5783 a gallon, while April heating oil
HOJ23,
+2.61%
was up 2.6% at $2.759 a gallon. -
April natural-gas futures
NGJ23,
-5.11%
fell 3.5% to $2.266 per million British thermal units.
Supply data
“Crude prices have been reeling over the past week amid fears of a credit crunch and banking contagion helping to precipitate a recession just as the lagged effects of tightening monetary policy were already set to take hold,” Troy Vincent, senior market analyst at DTN, told MarketWatch. “This led market participants to cut bullish speculative positions in recent weeks and a rise in hedging among producers.”
However, the Energy Information Administration’s weekly petroleum supply report revealed much larger than expected draws to gasoline and distillate fuel oil, “providing fundamental support to a market that has been beat down by financial risk considerations in recent weeks,” he said.
Domestic demand for fuels continues to remain weak, but net exports of fuels have “shot higher and this, coupled with U.S. crude export strength, continues to signal that the global oil market is relatively healthier than what is seen domestically,” said Vincent. “On a four-week average basis imports of both gasoline and distillate fuel oil are their weakest in over five years, while product exports are continuing to push higher.”
The EIA on Wednesday reported that crude inventories edged up by 1.1 million barrels for the week ended March 17.
On average, analysts forecast a decline of 5.5 million barrels, according to a survey by S&P Global Commodity Insights. The American Petroleum Institute late Tuesday reported a 3.3 million barrel rise in last week’s crude inventories, according to a source citing the data.
The EIA report also showed weekly inventory declines of 6.4 million barrels for gasoline and 3.3 million barrels for distillates. The analyst survey had forecast supply decreases of 2 million barrels for gasoline and 1.3 million barrels for distillates.
Crude stocks at the Cushing, Okla., Nymex delivery hub fell by 1.1 million barrels for the week, the EIA said.
Other market drivers
The Federal Reserve will announce its latest policy decision at 2 p.m. Eastern, with Chair Jerome Powell set to begin his news conference at 2:30 p.m. Market expectations around the decision have fluctuated widely as the collapse of Silicon Valley Bank two weeks ago sparked fears of deeper problems in the banking sector.
See: Fed likely to follow ECB’s playbook and hike interest rates this week
Fed-funds futures have largely priced in expectations for a quarter of a percentage point rise. The banking woes added to fears that aggressive monetary tightening by the Fed and other central banks will spark a deep economic downturn, sinking crude last week to 15-month lows.
“The high likelihood of a potentially nasty recession remains the most notable threat to the oil market right now,” analysts at Sevens Report Research wrote in Wednesday’s newsletter.
Stephen Innes, managing partner of SPI Asset Management, however, questioned whether shorting oil as a recession hedge would be effective.
“Asia consumption has increased markedly since 2008, suggesting even in a minor OECD recession, the low elasticity of demand, along with oil prices mobility-driven nature, suggests selling oil does not offer the best hedge for how the next hypothetical recession is likely to play out in oil markets,” Innes said in a note. The OECD, or Organization for Economic Cooperation and Development, is made up of the world’s wealthy nations.
