Oil futures move lower as uncertainty blurs the demand outlook

By Myra P. Saefong and William Watts

Oil futures moved lower on Tuesday as investors continued to monitor the outlook for demand amid uncertainty over the global economic outlook.

Price action

Market drivers

Crude remains lower for the month, with pressure tied to worries that aggressive tightening by major central banks, including the Federal Reserve, could cause a significant economic slowdown later in the year.

Rising concern, due to overheating the U.S. economy, comes with a “sting in the tail due to a higher or longer Fed narrative and a much stronger U.S. dollar environment than expected, which is harmful to oil markets,” said Stephen Innes, managing partner at SPI Asset Management, in recent market commentary.

On the supply side, Russia previously announced a plan to cut production by 500,000 barrels a day in March. But oil has struggled to gain ground in part due to Russian crude exports that have remained robust, analysts have said.

Citing Bloomberg data, analysts at Commerzbank said Russian crude oil exports surged by 26% to 3.6 million barrels per day last week, with shipments from all Russian export terminals on the Baltic Sea and Black Sea, as well as in the Far East, reaching multiweek highs.

“Even if the marked upswing week-on-week was attributable to the previous week’s low level, the four-week average also shows an upward trend. 3.2 million barrels per day went to China, India, Turkey and other unknown destinations — this is the highest figure since the data series began at the start of 2022,” they wrote.

“China’s increased oil demand is thus being met to a large extent by higher supply from Russia. This may explain why the oil price has not been able so far to profit from the demand growth in China,” they said.

Natural-gas futures, meanwhile, are back to where they started in the third quarter of 2020, “after a spate of mild weather caused Henry Hub prices to slide below $2.30,” analysts at BofA Securities wrote in a research note dated Monday.

Nine months ago, ahead of a fire that shut the Freeport LNG shipping facility, natural gas was trading above $9 per million Btus, U.S. inventories were 300 billion cubic feet under seasonal five-year average levels and “there was concern about inventories running dangerously low,” said the BofA Securities analysts.

“Since then, mild weather and strong production growth caused the balances to flip, with inventories recently rising to more than 180 [billion cubic feet] above seasonal norms, a dynamic that has also played out in Europe,” they said.

-Myra P. Saefong



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