Oil Mixed in Volatile Trade; Large Crude Draw Lends Support

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- After back-and-forth trading for most of the session Wednesday, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled mixed. Investors balanced concerns over slowing economic growth in China and Eurozone against falling crude stocks in the United States and overall supply tightness on the global market amid international sanctions on Russian oil shipments and unplanned disruption to Libya's oil production.

West Texas Intermediate futures for May delivery expired little changed on Wednesday at $102.75 per barrel (bbl) after falling as low as $100.70 per bbl earlier in the session. The next-month June delivered WTI contract settled at a $0.56 discount to the now-expired contract with a settlement at $102.19 per bbl. The June international crude benchmark Brent contract slipped $0.45 for a $106.80-per-bbl settlement. NYMEX RBOB May futures gained 3.74 cents to $3.2858 per gallon, and the front-month ULSD contract rallied more than 11 cents to a $3.9731-per-gallon settlement.

Underlining support for gains in refined fuels was a bullish inventory report from the U.S. Energy Information Administration showing a much larger-than-expected draw from distillate stocks as demand for refined fuels powered higher during the second week of April. Distillate stocks fell by 2.7 million bbl from the previous week to 108.7 million bbl and are now about 20% below the five-year average. After four consecutive weeks of back-to-back weakness, demand for middle distillates gained 338,900 barrels per day (bpd) or 9% from a 3.484 million bpd four-month low. Demand for motor gasoline in the United States also improved by 131,000 bpd to 8.868 million bpd -- the highest weekly demand rate since mid-March.

A massive 8 million-bbl crude draw, however, had a muted impact on WTI futures that initially fell more than 3% in reaction to the bullish EIA report. The surprise draw was realized on the back of higher refinery run rates, up 1% from the previous week to 91% of capacity, a three-week high. In the reviewed week, refiners processed 15.7 million bpd of crude, which was 194,000 bpd more than the previous week's average.

U.S. crude oil production rose 100,000 bpd from the previous week to 11.9 million bpd, according to EIA.

Interestingly, crude oil exports surged to their highest weekly rate in more than two years last week, reaching 4.3 million bpd in a move possibly linked to the war in Ukraine and efforts to reduce other nations' purchases of Russian crude.

Potentially limiting the upside for the oil complex is a downward revision to global growth forecasts from the World Bank and International Monetary Fund this week that see an outsized negative impact from the war in Ukraine on the global economy. IMF revised lower its forecast for Eurozone's growth this year to 2.2% on Tuesday, down 1.1% from January's forecast, citing the indirect impact of war in Ukraine.

"The main channel through which the war in Ukraine and sanctions on Russia affect the euro area economy is rising global energy prices and energy security," the IMF said in its World Economic Outlook.

The war has hurt some countries like Italy and Germany more than other European nations because they had "relatively large manufacturing sectors and greater dependence on energy imports from Russia," the IMF said.

Overnight data showed industrial production in the 19-nation Eurozone bloc increased 0.7% in February, with Russia's invasion of Ukraine starting on Feb. 24. The data shows eurozone industrial output continued to grow ahead of the war, as production had stabilized at levels seen prior to the pandemic and supply chain problems were diminishing. However, the outlook for the bloc's manufacturing sector is clouded by uncertainty triggered by the conflict with clear risks to output in March and April.

On a global scale, IMF revised lower its economic outlook for growth in 2022 and 2023 to 3.6%, down from a projected 4.2% annual expansion rate in January.

In the United States, economic growth is seen expanding at an annualized rate of 3.7% this year, down from a 5.7% growth rate for 2021. Aggregate output for advanced economies will take longer to recover to its pre-pandemic trend, said IMF, with the divergence between advanced and developing economies expected to deepen this year.

IMF further stressed the war increases the risk of a more permanent fragmentation of the world economy into geopolitical blocks with distinct technology standards, cross-border payment systems, and reserve currencies.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges