Oil prices hold below $100 a barrel as U.S. supplies rise, demand destruction concerns emerge

Price action

• West Texas Intermediate crude for April delivery
  CL.1,
  +1.81%

  CL00,
  +1.81%

  CLJ22,
  +1.81%
  fell $1.40, or nearly 1.5%, to settle at $95.04 a barrel on the New York Mercantile Exchange — the lowest front-month contract settlement since Feb. 25, according to Dow Jones Market Data.

• May Brent crude
  BRN00,
  +1.88%

  BRNK22,
  +1.88%,
  the global benchmark, fell $1.89, or 1.9%, at $98.02 a barrel on ICE Futures Europe.

• April gasoline
  RBJ22,
  +1.66%
  fell nearly 0.4% at $2.988 a gallon, while April heating oil
  HOJ22,
  +3.58%
  tacked on 2.3% to $3.10 a gallon.

• April natural gas
  NGJ22,
  +0.04%
  settled at $4.748 per million British thermal units, up 3.9%.

Market drivers

WTI and Brent on Tuesday closed 22% below the nearly 14-year highs set on March 8, meeting the technical definition of a bear market, demonstrating the volatility in commodity markets that has followed Russia’s Feb. 24 invasion of Ukraine.

Read: Oil suffers ‘spectacular’ collapse, enters bear market just 5 days after settling at nearly 14-year highs

“If Brent’s massive upswing to $140 a week ago was exaggerated, so too is its slump now. After all, any peaceful resolution of the war in Ukraine is still a long way off, as the images we see in the news each day should make abundantly clear,” said Carsten Fritsch, commodities analyst at Commerzbank, in a note. “The sanctions against Russia are also likely to remain in place for quite some time after the war, deterring many consumers from buying Russian oil.”

Russia’s invasion of Ukraine and resulting sanctions threaten a supply shock that will weigh on the global economy and push the oil market into a deficit unless major producers increase output, the International Energy Agency said in a monthly report on Wednesday. Three million barrels a day of Russian oil and products could be effectively cut off from global markets starting next month, the IEA said.

Analysts noted some optimism around talks between Moscow and Kyiv after Ukraine President Volodymyr Zelensky was quoted as saying negotiations had become “more realistic” and Russian Foreign Minister Sergei Lavrov said there was “hope for reaching a compromise.”

See: Biden expected to announce another $1 billion in military aid to Ukraine

Meanwhile, the oil market appears “increasingly anxious around the sustainability of current demand trends, particularly as consumers are expecting some of the highest prices at the [gasoline] pump on record during a seasonal period when discretionary travel should be picking up,” said Robbie Fraser, global research & analytics manager at Schneider Electric, in a note.

U.S. benchmark stock indexes traded higher on Wednesday, but lost some steam after the U.S. Federal Reserve announced its first interest rate hike since 2018.

Chinese stock-market indexes rose Wednesday after the state-run Xinhua News Agency reported that Beijing would keep its stock markets stable and take measures to boost economic growth in the first quarter.

Supply data

The Energy Information Administration reported Wednesday that U.S. crude inventories rose by 4.3 million barrels for the week ended March 11. That followed two consecutive weeks of declines.

On average, the EIA was expected to show crude inventories up by 200,000 barrels, according to analysts surveyed by S&P Global Commodity Insights. The American Petroleum Institute on Tuesday reported a 3.75 million-barrel increase.

The EIA also reported a weekly inventory decline of 3.6 million barrels for gasoline, while distillate stockpiles edged up by 300,000 barrels. The analyst survey showed expectations for weekly supply declines of 2.6 million barrels for gasoline and 3.2 million barrels for distillates.

“Implied gasoline demand continues to hold up, showing scant signs of demand destruction,” said Matt Smith, lead oil analyst, Americas, at Kpler, adding that gasoline stocks are at their lowest level so far t his year.

However, implied “demand for distillates took a hit,” and inventories accordingly ticked a little higher,” he said.

The EIA data showed crude stocks at the Cushing, Okla., Nymex delivery hub edged up by 1.8 million barrels for the week. Stocks in the U.S Strategic Petroleum Reserve, meanwhile, were down by 2 million barrels last week at 575.5 million barrels.