Crude Settles Moderately Lower on Dollar Strength and a Hawkish Fed

April WTI crude oil (CLJ23) on Wednesday closed down -0.92 (-1.19%), and Apr RBOB gasoline (RBJ23) closed down -1.18 (-0.44%).  

Crude oil and gasoline prices Wednesday settled moderately lower.  Crude prices Wednesday extended Tuesday's losses after the dollar index (DXY00) climbed to a 3-1/4 month high.   Crude prices also had a negative carryover from Tuesday when comments from Fed Chair Powell raised concerns the Fed might raise interest rates higher and for longer, which may weigh on economic growth and energy demand.  Crude prices remained lower after Wednesday's mixed EIA inventory report.

A negative factor for crude was the action by Chinese Premier Li Keqiang on Monday to announce a GDP growth target for China this year at around 5%, below expectations of above 5% and below the 2022 target of around 5.5%, which is bearish for energy demand.

In a bullish factor, Vortexa Monday reported that the amount of crude stored on tankers that have been stationary for at least a week fell -6.1% w/w to 80.8 million bbl in the week ended March 3.

Indian buyers of Russian oil are struggling to obtain the crude as onerous demands from financiers wary of breaching Western sanctions are making it hard for Indian buyers to secure financing for their purchases of Russian crude.  The inability to fund the purchases of Russian crude may force Indian buyers elsewhere to obtain crude supplies, which is bullish for oil prices.  

Rising crude demand in India, the world's third-largest crude consumer, is bullish for prices.  India's oil ministry predicts India's oil-products consumption will climb by +4.9% y/y to a record 233.8 MT in the 12 months from April.  

On February 1, the OPEC+ Joint Ministerial Monitoring Committee recommended keeping crude production levels steady as the oil market awaits clarity on demand in China and crude supplies from Russia.  Goldman Sachs predicts that OPEC+ will only start to reverse its supply cuts, currently at about 2 million bpd, in the second half of this year when accelerating demand will tighten the market.  OPEC crude production in February rose by +120,000 bpd to 29.24 million bpd.

Wednesday's weekly EIA report was mixed for crude and products.  On the bearish side, EIA gasoline supplies fell -1.13 million bbl, a smaller draw than expectations of -2.0 million bbl.  Also, EIA distillate stockpiles unexpectedly rose +138,000 bbl to a 13-month high versus expectations of a draw of -1.3 million bbl.  On the bullish side, EIA crude inventories unexpectedly fell -1.69 million bbl versus expectations of a +1.6 million bbl build.  Also, crude supplies at Cushing, the delivery point of WTI futures, fell -890,000 bbl.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of March 3 were +7.8% above the seasonal 5-year average, (2) gasoline inventories were -4.2% below the seasonal 5-year average, and (3) distillate inventories were -8.1% below the 5-year seasonal average.  U.S. crude oil production in the week ended March 3 fell -0.8% w/w to 12.1 million bpd, which is only 1.0 million bpd (-6.9%) below the Feb-2020 record-high of 13.1 million bpd.

Baker Hughes reported last Friday that active U.S. oil rigs in the week ended March 3 fell by -8 rigs to a 5-3/4 month low of 592 rigs, moderately below the 2-1/2 year high of 627 rigs posted on December 2.  U.S. active oil rigs have more than tripled from the 17-year low of 172 rigs seen in Aug 2020, signaling an increase in U.S. crude oil production capacity.

• Crude Declines on Concern a Hawkish Fed Will Curb Energy Demand
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• Crude Closes Higher on Dollar Weakness and Strength in Stocks