Crude Oil Prices Retreat on Concern Bank Turmoil Will Spark Recession

April WTI crude oil (CLJ23) on Friday closed down -1.61 (-2.36%), and Apr RBOB gasoline (RBJ23) closed down -0.20 (-0.08%).  

Crude oil and gasoline prices Friday retreated, with crude falling to a 15-month low.  Crude oil prices were undercut by concern that the U.S. and European banking turmoil could push the global economy into a recession.  A weaker dollar Friday was supportive of crude prices.

Comments late Thursday from the U.S. Special Presidential Coordinator for Global Infrastructure and Energy Security weighed on crude prices when he said the U.S. "won't rush" to replenish the Strategic Petroleum Reserve despite the recent decline in oil prices.

A bullish factor for crude is strength in the crude crack spread, which climbed to a 7-week high Friday.  A stronger crack spread encourages refiners to purchase crude oil and refine it into gasoline and distillates.  

A bearish factor for crude was Wednesday's monthly report from the International Energy Agency (IEA) that said global crude supplies would "comfortably" exceed demand in the first half of this year.  The IEA reported that global oil inventories surged by 52.9 million bbl in Jan to 7.8 billion bbl, the highest in 1-1/2 years.

A negative factor for crude was JPMorgan Chase's projection Monday that Q1 China fuel demand would be less than forecast due to lower-than-expected international travel from China.  China's international travel is only 23% of 2019's average since reopening in early January.

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 -9% w/w to 73.62 million bbl in the week ended March 10.

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 EIA report showed that (1) U.S. crude oil inventories as of March 10 were +6.9% above the seasonal 5-year average, (2) gasoline inventories were -2.5% below the seasonal 5-year average, and (3) distillate inventories were -7.8% below the 5-year seasonal average.  U.S. crude oil production in the week ended March 10 was unchanged at 12.2 million bpd, which is only 0.9 million bpd (-6.9%) below the Feb-2020 record-high of 13.1 million bpd.

Baker Hughes reported Friday that active U.S. oil rigs in the week ended March 17 fell by -1 rig to a 9-month low of 589 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.

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