Oil closed at a 15-month low as a wave of technical selling and options covering accelerated a three-day slide. The US benchmark plunged more than 5% Tuesday, plagued by banking-sector turmoil that’s eroding oil-demand optimism. Adding to the chaos, financial firms trying to limit their exposure to falling prices in the options market began dumping crude futures in a strategy known as delta hedging. West Texas Intermediate crude has lost 10% of its value in March, prompting analysts to wonder how far prices must fall before OPEC+ adjusts output quotas. While the cartel has said it’ll keep production unchanged this year, headwinds are bearish: US crude stockpiles are expanding again, Russian exports remain resilient in the face of sanctions and the International Energy Agency expects a surplus in the first half of the year.
“The path of least resistance is clearly to the downside for oil,” Fawad Razaqzada, a market analyst at StoneX, said in a note. As long as oil prices stay below $70 a barrel, he added, “the sellers will remain in control.” Until recently, oil was stuck in a $10 range with traders balancing aggressive monetary tightening with optimism around China’s demand recovery.
Crude Oil Inventories Build But Products Take A Tumble
Crude oil inventories in the United States rose this week, with a 1.155 million barrel build, the American Petroleum Institute (API) data showed on Tuesday, bringing the total number of barrels gained so far this year to more than 56 million barrels. NB: Biden has released 260 million barrels from the strategic stock pile. This week, SPR inventory held steady for the ninth week in a row at 371.6 million barrels—the lowest amount of crude oil in the SPR since December 1983. Oil prices traded down on Tuesday in the run-up to the data release, with the collapse of Silicon Valley Bank spooking the markets. At 2:25 p.m. EST, WTI was trading down $2.90 (-3.88%) on the day to $71.90 per barrel, a dip of nearly $6 per barrel on the week. Brent crude was trading down $2.89 (-3.58%) on the day at $77.88—down roughly $5.50 per barrel from this same time last week. It is the lowest price this year.
U.S. crude oil production fell to 12.2 million bpd for week ending March 3. U.S. production is now 900,000 bpd lower than the peak production seen in March 2020.
While crude oil saw a build, it was the only build this week, with product inventories falling.
Gasoline inventories fell by 4.587 million barrels after last week’s data showed the fuel inventories rose by 1.840 million barrels. Distillates fell by 2.886 million barrels after increasing by 1.927 million bpd in the week prior. Inventories at Cushing, Oklahoma, decreased by 946,000 barrels more than undoing the 24,000 barrel hike reported last week. Refineries operated at 88.2% of their capacity. BlackMask Pod Cast:
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