Myra Saefong and William Watts, MarketWatch

SAN FRANCISCO/NEW YORK
EnergiesNet.com 04 20 2022

Concerns over a slowdown in energy demand and uncertainty over if and when Europe will ban Russian oil pressured prices, but the market also found support from an eight million-barrel weekly drop in U.S. crude supplies.

Price action

• West Texas Intermediate crude for May delivery CL.1, CLK22, rose 19 cents, or 0.2%, to end at $102.75 a barrel on the New York Mercantile Exchange on the contract’s expiration day. The most actively traded June contract CL00, 0.05% CLM22, 0.05%, which has become the front month, added 14 cents, or 0.1%, to settle at $102.19 a barrel.
  
• June Brent crude BRN00, +0.40% BRNM22, +0.40%, the global benchmark, fell 45 cents, or 0.4%, at $106.80 a barrel on ICE Futures Europe. Brent and WTI futures both fell more than 5% on Tuesday.
  
• May gasoline RBK22, +0.12% rose nearly 1.2% to $3.285 a gallon.
  
• May heating oil HOK22, -0.52% added 2.9% to $3.973 a gallon.
  
• May natural gas NGK22, -1.18% settled at $6.937 per million British thermal units, down 3.3% for the session, but holding onto a month-to-date rise of nearly 23%.

Supply data

U.S. oil prices settled higher as 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.”

Other market drivers

Some demand concerns, even as the latest inventory data “showed that [U.S. petroleum] demand had improved in almost every category,” put some pressure on prices Wednesday, 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.

Germany, which gets about a quarter of its oil from Russia, said Wednesday that it will stop imports of Russian oil by the end of the year, according to a BBC News report.

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