Oil Dips as Market Balanced Shocks, Low Demand in China
Oil dips as the market balanced supply shocks and low demand by Chine following a fresh invasion of coronavirus that necessitated another lockdown in the cities. The global action toward curbing energy cost-driven inflation pressures is attacking oil prices from making an upward trajectory in a sustainable manner.
In a report, the International Energy Agency said the crude oil market is unlikely to develop a “sharp” deficit as lower demand, the expectations for which have been cut, and a steady increase in global supply are helping tackle the impact of the Russia-Ukraine war.
International benchmark Brent crude cost $104.47 per barrel, translating to a 0.16% decrease after closing the previous session at $104.64 a barrel.
The American benchmark West Texas Intermediate (WTI) traded at $100.42 per barrel at the same time for a 0.18% loss after the previous session closed at $100.60 a barrel. Brent prices swung widely after settling at $98.90 a barrel on Wednesday but later rose to $105.60 a barrel with growing supply and demand uncertainties.
While the global oil inventories have fallen for 14 months in a row, pushing February stocks 714 million barrels below the level seen at the end of 2020, preliminary data show a build in the Organization for Economic Cooperation and Development stocks of 8.8 million barrels in March, the agency said in its April report on Wednesday.
Russian oil supply is likely to plunge by 1.5 million barrels a day in April, with shut-ins projected to accelerate the slump to about 3 million barrels a day from May.
However, the global oil supply rose in March by 450,000 to 99.1 million barrels a day, led by producers outside the Organization of Petroleum Exporting Countries and non-OPEC members led by Russia, an alliance known as OPEC+.
The International Energy Agency cut its estimate for global oil demand by 260,000 barrels a day for the year. Demand is now expected to average 99.4 million barrels a day. READ: Oil Price Balanced amidst Demand Recovery Pressure
“Despite the disruption to Russian oil supplies, lower demand expectations, steady output increases from OPEC+ members along with the US and other non-OPEC+ countries, and massive stock releases from IEA member countries should prevent a sharp deficit from developing,” the report said.
Earlier this month, the International Energy Agency member countries agreed to tap their emergency reserves for the second time in a month, this time to the tune of up to 120 million barrels.
That includes 60 million barrels from the US, which has pledged to release 1 million barrels a day for six months to help ease oil prices at the pump. In total, the US plans to release 180 million barrels from its special reserve.
Crude prices have eased following announcements of the US and IEA stock releases. The West Texas Intermediate futures traded at $100.37 early on Wednesday, after hitting the $130 mark ahead of the US ban on imports of Russian energy products as the geopolitical crisis in Ukraine worsened.
“The stringent lockdowns in China have led us to further revise down our estimate for oil demand in Q2 and for the year as a whole,” the report said. “In addition, more complete demand data for Q1, especially in the US, was sharply lower than preliminary estimates.”
Brent Crude Oil Price to fall below $110
The benchmark Brent crude oil price is forecast to average $108 per barrel in Q2 and $102/b in 2023, down from $117/b in last month, the US Energy Information Administration reported in its Short-Term Energy Outlook released Tuesday.
The agency said its price forecast is highly uncertain as the outcome would depend on the impact of Russian sanctions, any future sanctions and independent corporate actions on Russia’s oil production or Russian oil sales in the global market.
Other oil producers’ responses to oil prices and the impacts of macroeconomic developments on global oil demand are expected to be crucial to oil price formation in the coming months, the EIA said.
Global oil inventories are still expected to build at an average rate of 0.5 million barrels per day from the second quarter through the end of 2023, which would put downward pressure on oil prices, despite a reduction in the agency’s Russian oil production forecast, according to the EIA.
The EIA also projects US prices for retail gasoline to average $3.84 per gallon in the summer, an increase from $3.06/gal in the year-ago period and the highest price since the summer of 2014. Retail diesel prices for the summer are expected to average $4.57/gal, which is also the highest inflation-adjusted price for the summer since 2014, the EIA said. #Oil Dips as Market Balanced Shocks, Low Demand in China
