Recession fears in oil markets outweigh concerns about tight fuel inventories

The oil market capped off another volatile week of trading, trading up and down in the $5-a-barrel range as it pulled between bullish and bearish catalysts in both directions on a daily basis. two benchmarks Eight-week high Earlier on Tuesday, it only pulled back later in the day and joined a sell-off on Wall Street on Wednesday as investor fears of a possible recession reignited as top retailers pointed to costs in their quarterly earnings reports. Soaring and supply chain bottlenecks.

In the week to May 20, oil market participants focused more on “recession fears” headlines than on the weekly U.S. oil status report, which showed another drop in gasoline inventories and an implied increase in domestic demand , despite record high gasoline prices. The U.S. will only rise further as we enter the summer driving season.

“The market is reacting to a variety of different headlines every hour, and the oil market is getting more exaggerated every day,” said Andrew Lipow, president of Lipow Oil Associates in Houston. Reuters Oil prices closed higher on Thursday after the dollar weakened, after crude prices tumbled in earlier trade in the day.

Overall, the market appears to be more concerned about an increased possibility of a recession than a drop in U.S. fuel inventories to multi-year lows this time of year. Investors and speculators pulled out of oil, a riskier asset, as fears of a more pronounced global slowdown or even recession intensified and dampened risk appetite.

Sebastien Bischeri, Oil and Gas Trading Strategist at Sunshine Profits

The EU is still trying to persuade Hungary to accept an EU embargo on Russian oil imports. The more bearish factor is the new COVID outbreak in China, with Shanghai temporarily reopening but the number of infections in the Beijing area is rising.

However, while the market focused on a bleaker economic outlook, it ignored – at least for the past week – that U.S. fuel inventories were extremely low.

Not that oil demand has soared so is supply capacity, globally and in the U.S., is now several million barrels per day below pre-pandemic levels. Rising demand since the reopening of the economy and people returning to travel, combined with lower refining capacity and a very tight distillate market, has resulted in U.S. product inventories falling below seasonal averages and multi-year lows, with record inventories reported on the East Coast. new low.

Total motor gasoline inventories fell by 4.8 million barrels in the week ended May 13, the EIA said in its latest weekly inventories, about 8% below the five-year average for this time of year. Report May 18. Implied gasoline demand, as measured by product supply, rose despite record prices across the U.S.

Gasoline inventories in the U.S. were at their lowest levels since 2014, and East Coast inventories were tighter at their lowest levels since 2011.

Related: EU faces same hurdle as embargo on Russian oil tariffs

“While refiners have some room to increase operations (utilization increased by 1.8 percentage points to 91.8% this week), gasoline demand should increase as we enter the driving season, suggesting we will see further tightening in the U.S. gasoline market. In this case, we may see further pressure from the U.S. government trying to rein in gasoline prices,” ING strategists Warren Patterson and Wenyu Yao wrote Thursday.

According to Commodities principal analyst Bjarne Schieldrop, SEB:

“With 2020/21 capacity reductions, a recovery in demand for petroleum products and the reopening of Russia/Ukraine issues, the global refining system is severely strained. We are now entering the summer driving season with much higher gasoline demand and very low start of inventories.”

Concerns about economic growth, fuel demand not yet reflected in actual data, Saxo Bank said Thursday.

“On the ground, however, such concerns have yet to be reflected, with crude oil and gasoline inventories still falling, and implied gasoline demand in the U.S. remaining strong despite record prices.”

“Meanwhile, in China, the easing of lockdowns has not been smooth as new outbreaks have slowed the pace of normalization. Until then, the market will likely focus on the overall level of risk appetite that is currently challenging,” Saxo Bank’s strategy The team pointed out.

By: Tsvetana Paraskova of

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