Crude oil futures shrugged off early weakness and ended higher on Wednesday after U.S. gasoline and distillate inventories fell sharply.
Earlier in the session, oil futures edged lower after Russia cut gas supplies to Poland and Bulgaria, as investors assessed the threat to demand from China’s coronavirus lockdown. A surging dollar also weighed on oil and other dollar-denominated commodities.
energy commodity prices
- Delivered in June WTI CrudeFutures rose 32 cents, or 0.3%, to settle at $102.02 a barrel, after hitting a session low of $99.80.
- Delivered in June Brent CrudeFutures rose 33 cents, or 0.3 percent, to settle at $105.32 a barrel.
- Natural gas futures for May delivery rose 6.1% to settle at $7.2670 per million Btu.
- Gasoline futures for June delivery rose 3.1% to settle near $3.4135 a gallon.
- Delivered in JuneThermal Fuel FuturesPrices rose 3.3 percent to settle at $3.9391 a gallon.
market driving force
While the People’s Bank of China has pledged to provide monetary policy support for small businesses and industries hardest hit by the outbreak, fears of a lockdown in Beijing have swiftly tested residents for nucleic acid tests, and worries about crude oil demand are starting to weigh on prices.
Robbie Fraser, Schneider Electric’s global research and analysis manager, said in the report: “In recent weeks, we have seen a significant loss of demand in China due to epidemic prevention efforts. With the increase in the number of confirmed cases in Beijing, market anxiety has also increased.”
While China has ramped up testing in the capital, Beijing, it has yet to see a massive targeted lockdown as in Shanghai.
Meanwhile, Russia’s state-run gas giant Gazprom said on Tuesday it had cut off gas supplies to Poland and Bulgaria after the two countries refused to comply with President Vladimir Putin’s demands to “pay in Russian rubles”. Futures, which track wholesale gas prices in Europe, hit 119 per thousand degrees (MWh) in early trade on Wednesday EURand then fell back.
Warren Patterson, head of commodity strategy at ING, said in the report: “The concern in the EU market, and in the global gas market, is whether Russia will escalate further and cut supply to other European countries.” He believes that the real risk of further Russian escalation shows that European gas prices will be well supported, and the move will have spillover effects to other gas markets, especially Asia. Europe will have to intensify competition with Asia to buy flexible liquid natural gas (LNG) supplies, which will keep Asian LNG spot prices well supported.
EURandGBPICE falls sharply against dollar US dollar indexSoaring to a high level not seen since February 2017. A stronger U.S. dollar is seen as a headwind for dollar-denominated commodities, as it makes them more expensive for buyers using other currencies and cuts demand.
Crude oil reversed course and closed higher after the Energy Information Administration (EIA) released last week’s inventory data. US crude oil inventories rose by 700,000 barrels last week. Analysts polled by The Wall Street Journal had forecast an increase of 600,000 barrels. However, the American Petroleum Institute (API) reported later on Tuesday that crude inventories rose by 4.78 million barrels last week.
The EIA also reported that gasoline inventories fell by 1.6 million barrels last week and distillates fell by 1.4 million barrels. Analysts had expected gasoline inventories to rise by 100,000 barrels and distillate to fall by 100,000 barrels.
Matt Smith, chief oil analyst for the Americas at Kpler, said crude exports remained strong, and the U.S. government’s move to release the Strategic Petroleum Reserve (SPR) again provided some offset, preventing a decline in commercial inventories.
“Implicit demand for gasoline is down, but so are inventories, while distillate inventories continue to plummet to multi-year lows.”