Oil prices fell sharply Wednesday, pulling global benchmark crude to its lowest settlement in more than 16 months and U.S. crude prices below $70 a barrel to their lowest finish since March.
U.S. petroleum inventory data from the Energy Information Administration released early Wednesday showed a third straight weekly decline for domestic crude supplies, while gasoline stockpiles moved higher. Prices, meanwhile, held onto the bulk of their losses for the session after the Federal Reserve announced an interest-rate hike Wednesday afternoon, as expected.
Price action
- July Brent crude
BRN00,
+0.01%BRNN23,
+0.01%,
the global benchmark, fell $2.99, or 4%, to settle at $72.33 a barrel on ICE Futures Europe. That was the lowest front-month finish since Dec. 20, 2021, according to Dow Jones Market Data. - West Texas Intermediate crude for June delivery
CL00,
+0.29%CL.1,
+0.17%CLM23,
+0.17%
fell $3.06, or 4.3%, to settle at $68.60 a barrel on the New York Mercantile Exchange, the lowest front-month contract settlement since March 20. - Back on Nymex, June gasoline
RBM23,
+0.15%
lost 4.7% to $2.32 a gallon, while June heating oil
HOM23,
+0.19%
settled at $2.23 a gallon, down 2.5%. - June natural gas
NGM23,
+0.31%
declined by 2% to $2.17 per million British thermal units.
Supply data
The Energy Information Administration on Wednesday reported that U.S. commercial crude inventories fell by 1.3 million barrels for the week ended April 28. That marked a third consecutive weekly decline in crude supplies reported by the EIA.
On average, analysts forecast a decline of 3.3 million barrels, according to a survey by S&P Global Commodity Insights. The American Petroleum Institute late Tuesday reported a 3.9 million barrel drop in U.S. crude inventories, according to a source citing the data.
The government data showed a modest draw to crude stocks, though that was curbed by a 2 million-barrel release from the Strategic Petroleum Reserve, and a dip in refinery runs, said Matt Smith, lead oil analyst, Americas, at Kpler. “Refinery runs should push on higher in the weeks ahead, while the EIA showed another large positive adjustment. It appears they are overestimating crude exports and underestimating domestic production.”
The EIA report showed a weekly inventory gain of 1.7 million barrels for gasoline while distillate stockpiles moved down by 1.2 million barrels. The analyst survey had forecast supply declines of 300,000 barrels for gasoline and 1.5 million barrels for distillates.
Crude stocks at the Cushing, Okla., Nymex delivery hub rose by 500,000 barrels for the week, the EIA said, while oil stocks in the SPR fell by 2 million to stand at 364.9 million barrels.
Other market drivers
Oil prices have been weak recently on China demand concerns, some downgrades in the price of spot oil by banks, as well as the ongoing fear of a recession, Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch.
Prices for WTI crude fell by more than 5% on Tuesday, with recession worries exacerbated by a plunge in regional banking shares.
“The correlation between banking turmoil and plunging oil prices is undeniable,” said Phil Flynn, senior market analyst at The Price Futures Group, in a daily report.
“The drama surrounding the banks will put more focus of the Federal Reserve,” he said.
On Wednesday afternoon, the Fed delivered another quarter-point interest rate hike, but also signaled it was ready to pause rate hikes.
See: Fed hikes rates and revamps forward guidance in dovish direction
Crude prices “tried to pare losses after the dollar tumbled following a dovish Fed statement,” said Edward Moya, senior market analyst at OANDA, in a market update.
“The end of the Fed’s hiking cycle is here as policymakers become more worried about economic activity,” he said. “If the Fed is worried, that is bad news for the economy and the crude demand outlook.”
The focus for the oil market will shift to OPEC+ — and the group “might be in a position where if they want to stabilize prices, they need to deliver on previously announced production cuts and signal that more are coming,” said Moya.
Crude has retreated sharply from its early April highs scored after the Organization of the Petroleum Exporting Countries and its allies — known as OPEC+ — announced a round of unexpected production cuts.
For now, “investors seem to be getting increasingly nervous about the macro outlook and its implications for oil demand,” Warren Patterson and Ewa Manthey, commodity strategists at ING, wrote in a note.
From a “technical point of view, $70 [a barrel], which was close to the low seen in March, should provide support to the market,” they wrote in a note. Around these levels, “we could possibly see the U.S. administration starting to refill its strategic petroleum reserves,” they said, while a break below $70 would be a “concern” for OPEC+.
Analysts at Morgan Stanley on Wednesday lowered their year-end forecast for Brent to $75 a barrel from $87.50, arguing that forecasts for declines in Russian supply are too high, while the boost to crude demand from China’s re-opening after the lifting of COVID-19 restrictions has largely played out.
