Oil Shrugs off Bullish EIA Report, Chases Equities Lower

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange accelerated losses in afternoon trade Wednesday, sending June West Texas Intermediate as much as 3% lower. The losses came amid an intensifying selloff across financial markets after major U.S. retailers, including Target and Costco Wholesale, said their profit margins are being squeezed by rising costs and supply chain bottlenecks despite overall upbeat retail sales in April.

The profit squeeze at retailers ignited concern that inflation will pressure economic growth, with those worries outgunning bullish inventory data and geopolitics to send oil futures sharply lower on the session.

The European Union is still pushing forward with a planned embargo on Russian oil exports with several EU officials on Wednesday reiterating that they are confident Hungary, a major opponent to banning Russian energy trade, would eventually come back to the negotiating table. Clashes in Tripoli, Libya's capital, where warring adversaries continue to fight for political control of the north African nation and its oil bounty, reduced output to a fraction of its pre-war levels. Libya's oil production has fallen by about 500,000 barrels per day (bpd) to 800,000 bpd, the lowest in months amid extended closures of major oil fields in the country's southern region.

Midmorning Wednesday, Energy Information Administration reported U.S. total oil and petroleum products stocks declined by 2.9 million barrels (bbl) during the second week of May as fuel demand powered higher ahead of the summer driving season. Gasoline inventories dropped a larger-than-expected 3.4 million bbl to 220.2 million bbl and are about 8% below the five-year average. Meanwhile, gasoline demand in the United States climbed to 9.027 million bpd -- the second-highest weekly rate this year.

U.S. commercial crude oil inventories fell 3.4 million bbl to 420.8 million bbl, and now stand about 14% below the five-year average. Large draw was bullish against market expectations for a 1 million bbl decrease and a 1.4 million bbl build reported by the American Petroleum Institute late Tuesday. Oil stored at the Cushing tank farm in Oklahoma, the delivery point for NYMEX WTI futures, decreased by 2.4 million bbl to 25.8 million bbl.

Oil traders shrugged at the bullish data, instead focusing on financial markets where a slew of poor retail earnings and profit warnings sent stocks sharply lower in a selling frenzy. Dow Jones Industrials 1,165 points in afternoon trading, down 3.6% on the session, and the S&P 500 dropped 4%, while the tech-focused Nasdaq Composite slid 4.7%. The losses marked a U-turn from Tuesday when technology shares had led a rebound in markets.

Spearheading investor concerns is decades high inflation in the United States and how much monetary tightening will be needed to bring inflation under control before the economy slips into recession. Federal Reserve Chairman Jerome Powell said Tuesday that the central bank's resolve in combating inflation shouldn't be questioned, even if it requires pushing up unemployment.

U.S. retail sales for April showed Americans were still spending on merchandise at a rapid clip last month, potentially fueled by credit-card borrowing, suggest some economists. The value of overall retail purchases increased 0.9% in April, after an upwardly revised 1.4% gain in March, Commerce Department figures showed Tuesday. Excluding vehicles and gas stations, sales rose 1% last month. The figures are not adjusted for inflation.

At settlement, NYMEX June WTI fell $2.81 per bbl to $109.59 per bbl, and ICE July Brent crude declined to $109.11 per bbl, down $2.82 per bbl. NYMEX June RBOB futures plunged 22.11 cents to $3.7206 per gallon, a sharp retreat from Monday's $4.0640 record high on the spot continuous chart, while the June ULSD contract dropped 13.12 cents to $3.6681 per gallon.

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

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

Liubov Georges