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One of Rigzone’s regular market prognosticators takes a look at some recent market surprises, the EIA inventory update, the Fed’s effect on the oil market and more. Read on for more detail.
Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?
Barani Krishnan, Senior Commodities Analyst at uk.Investing.com: U.S. crude stockpiles had another drawdown over the past week [Editor’s note - week of April 14], as per trade expectations. Virtually everything else was unscripted, meaning surprises - only that the surprises did not bode too well for those long oil.
Rigzone: What were some market surprises?
Krishnan: The weekly inventory update from the U.S. Energy Information Administration, or EIA, cited a larger than expected drawdown of 4.581 million barrels during the week ended April 14, EIA reported. In the previous week to April 7, crude stockpiles rose by 0.597 million barrels. Industry analysts tracked by Investing.com had expected the EIA to report a crude balance decline of just 1.088 million barrels for last week [Editor’s note - week of April 14].
On the gasoline inventory front, however, the EIA cited a build of 1.3 million barrels versus the forecast drop of 1.267 million barrels, and against the previous weekly decline of 0.331 million … With distillate stockpiles, the EIA reported a 0.356 million barrel draw, against expectations for a drop of 0.927 million barrels and versus the prior week’s consumption of 0.606 million.
The inventory numbers weren’t the only surprise. Almost every day this week [Editor’s note – week of April 21], crude prices fell two percent … The trigger for the selloff was the anxiety building in markets ahead of the widely expected Fed rate hike on May 3 — the tenth of its kind since the end of the pandemic, which would add a full five percent to rates compared with the March 2020 peak of 0.25 percent. Fed officials acknowledge that persistent rate hikes would slow the economy and result in a recession. But a recession is better than runaway inflation, they seemed to have decided.
To oil bulls, of course, nothing could be more exasperating. After the gift of a 1.7 million barrels per day cut announced by OPEC+ at the start of this month to add to the cartel’s long-running reduction of two million barrels per day, the oil markets have floundered again. At Thursday’s close, New York-traded West Texas Intermediate, or WTI, crude closed down $1.87, or 2.4 percent, at $77.29 a barrel, after a three-week low at $76.97. London-traded Brent crude, the global benchmark for oil, finished the day down $2.02, or 2.4 percent, at $81.10 per barrel, after a three-week low at $80.78.
The OPEC+ production maneuver had taken WTI to above $83 just at the start of this month, and Brent to over $87.
Rigzone: What developments/trends will you be on the lookout for this week?
Krishnan: More weakness in oil ahead of the Fed’s rate decision on May 3.
To contact the author, email andreas.exarheas@rigzone.com
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