Oil futures: Prices volatile as oil markets face conflicting signals

12 May 2022

Quantum Commodity Intelligence - Crude oil futures were slightly lower in late-trading Thursday after another session of volatile activity, as markets continued to face conflicting signals in the form of tight oil supplies against demand destruction fears.

Front-month July ICE Brent futures were trading at $107.01/b (1750 GMT), compared to Wednesday’s settle of $107.51/b and Thursday's range of $104.59-$108.71/b.

At the same time, June NYMEX WTI was trading $105.53/b, versus Wednesday’s settle of $105.71/b.

“The oil market can’t justify oil prices below $100/b given the potential shock that will occur once the EU is able to move forward with their ban on Russian crude,” said Ed Moya, senior market analyst at brokerage Oanda, commenting on the earlier price rebound. 

Investors were digesting the latest report from the International Energy Agency (IEA), which said lower output from Russia will not leave the world short of oil, as supply increases elsewhere and Chinese lockdowns curtail demand.

The agency said it sees overall decline in Russian supply by 1.6 million bpd in May and 2 million bpd in June, down from the 3 million bpd previously forecast. 

OPEC, meanwhile, lowered its demand forecast for a second straight month due to softer global economic growth owing to the war in Ukraine, lockdowns in China and concerns over lower consumption. Demand is forecast at 3.4 million bpd in 2022, 300,000 bpd less than April's forecast.

Proposed EU sanctions on Russian oil remained caught up in detail as the bloc worked on a solution for countries most impacted by a full embargo, while Hungary continues to push back against a ban on pipeline oil.  

Broader economic signals and recessionary concerns remained a drag on markets earlier in the session, as the US consumer price index accelerated 8.3% in April, more than the 8.1% estimate and near the highest level in more than 40 years. 

Demand destruction in China also remains a concern amid the slow pace of lifting Covid restrictions, despite the drop in new cases. 

Latest EIA figures from the US showed gasoline stocks at 225 million barrels, down 3.6 million on the week and unwinding last week’s build to leave them at the lowest in a month.

The dynamic was replicated in distillate fuel, where stocks of distillates fell nearly 1 million barrels to 104 million barrels – a 17-year low – as US refiners ramped up exports 13% on the week amid a fall in domestic consumption of 180,000 bpd to 3.8 million bpd.

Traders were also watching for further developments in European gas markets after Russia introduced counter-sanctions, including against its nationalised former German subsidiary.