The oil market fears a recession more than a drop in fuel stocks

The oil market ended another choppy week of frenetic trading, swinging up and down the $5 per barrel range as it was dragged between bullish and bearish catalysts in both directions each day. Both criteria It reached its highest level in eight weeks early Tuesday, only to pull back later in the day and join Wednesday’s selloff on Wall Street sparked by renewed investor fears about a possible recession as major retailers pointed to rising costs and supply chain bottlenecks in their quarterly earnings reports.

In the week ending May 20, oil market participants paid more attention to the “recession fear” headlines than the weekly report on the state of oil in the US, which showed another draw in gasoline stocks and a rise in implied domestic demand, which – despite record high gasoline prices In America – it is set to rise further as we enter the summer driving season.

“The market reacts to all kinds of different headlines from hour to hour, and the movement in the oil markets on a daily basis is getting more and more inflated,” said Andrew Lipow, president of Lipow Oil Associates in Houston. Reuters On Thursday, when oil settled higher after the weakness of the US dollar, after the decline in crude prices in the previous trading on the same day.

Overall, the market sounded more concerned about the rising prospects of a recession rather than US fuel stocks dropping to multi-year lows for this time of year. Investors and speculators pulled out of oil, with crude oil considered one of the riskiest assets, as concerns about a more pronounced global economic slowdown – and even a recession – intensified and waned risk appetite.

“Possible easing of US sanctions against Venezuela could be seen as another bearish factor, in addition to the Hungarian veto of the European Union’s plan to ban Russian oil,” Sebastian Becheri, oil and gas trading strategist at Sunshine Profits, wrote in.

The EU is still struggling to get Hungary to accept the EU’s ban on Russian oil imports. Adding to the downside factors has been the outbreak of the new coronavirus in China, where Shanghai has temporarily reopened, but infections are increasing in the Beijing region.

However, while the market focused on the bleaker economic outlook, it ignored – at least last week – very low US fuel stocks.

This does not mean that the demand for oil has increased much. that it Supply AbilityGlobally and in the US, this is now a few million barrels a day lower than it was before the pandemic. Rising demand since economies reopened and people returned to travel, combined with reduced refining capacity and very tight distillate markets, have reduced US product stocks below seasonal averages and at multi-year lows, with record low stocks reported in the coast. Eastern.

Total auto fuel stocks fell by 4.8 million barrels in the week ended May 13, the Energy Information Administration said in its latest weekly stockpile, about 8% below the five-year average for this time of year. Report On May 18, implied demand for gasoline, measured in supplied products, rose despite record price increases across the United States.

Gasoline stocks in the US are at their lowest levels for this time of year since 2014, with stocks down on the East Coast, at their lowest since 2011 for this time of year.

Related topics: The EU faces the same hurdles on tariffs on Russian oil as on the embargo

While refiners have room for a run up (use rates increased 1.8 percentage points to 91.8% over the week), gasoline demand should increase as we approach driving season, suggesting we will see a further tightening in the US gasoline market. . In this case, we are likely to see more pressure on the US administration to try to rein in gasoline prices,” ING strategists Warren Patterson and Wenyu Yao books Thursday.

According to Bjarne Schieldrop, Senior Analyst, Commodities, at SEB:

The global refining system is under severe pressure in the wake of capacity cuts in 2020/21, which has led to a revival of demand for oil products along with a reopening with Russia/Ukraine issues at the fore. We are now heading into the summer driving season with gasoline demand rising as stocks start to run very low. ”

Concerns about economic growth, and thus fuel demand, were not reflected in actual data, Saxo Bank She said Thursday.

“However, on the ground, this concern has not yet reversed as crude and gasoline stocks continue to decline while implied US gasoline demand, despite record prices, remains robust.”

Meanwhile, easing China’s lockdowns is not going well with outbreaks of new cases slowing the pace of normalization. Until then, the market is likely to focus on the overall level of risk appetite, which is the level that is currently facing challenges,” noted the strategy team at Saxo Bank.

By Tsvetana Paraskova for

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