Yesterday, oil prices fell to the lower end of their range. WTI dropped below $70. Markets quickly discounted the risk of supply linked to Russia’s short-lived coup and expectations for a more hawkish Fed. They instead focused on larger trends such as Russian crude exports surpassing expectations due to an increased demand in China and other emerging markets. The US crude oil rig count, crude stocks and crude production are closely monitored. Oil price spreads also indicate a global oversupply, a sign of warning for the OPEC+ Alliance.
1. Oil prices fell to the lower range of their recent range and dropped below $70 per barrel. The market has shrugged off any “war premium” The coup in Russia and the waning expectations for a Federal Reserve that is more hawkish after strong economic results have all contributed to this.
2. The market discounted any significant supply risk despite the brief uprising of Russian paramilitary over the weekend. Over the last year, Russian crude oil exports have often exceeded expectations due to the buying interest of China and other emerging markets. This has compensated for market share lost in the U.S.
3. Last week, the U.S. crude stockpiles experienced a surprise drawdown of 9.6 million barils. The Cushing Hub saw a small build in inventories, but products also experienced a small increase. The U.S. oil production hasn’t decreased despite the decrease in rigs. This shows that the oil markets are stuck in a range, and all news is being taken into account without any significant impact on price. The oil price spreads indicate an oversupply of crude oil on the global market, a warning sign for OPEC+.
WTI fell below $70 in spite of the supply risk associated the recent Russian coup. Markets have quickly discounted the threat of the short-lived uprising led by Russian paramilitary groups, since Russian crude exports consistently exceeded expectations in the last year. This is due in part to the increased interest of buyers from China and developing markets. This helps Russia offset lost market shares in the U.S. and EU.
Following an unexpected decline in crude stocks last week, attention is now being focused on crude inventories. API reports show that U.S. crude stocks plummeted 9.6 million barrels – much more than expected – while product inventories saw minor increases. Cushing Hub inventories have reached their highest level since June 20, 21. The Strategic Petroleum Reserve (SPR) was depleted for the 13th week in a row despite the Biden administration’s promise to replenish it. Around 1.35 million barrels of oil were removed.
The U.S. crude oil production has yet to show signs of slowing despite a significant decline in the U.S. Oil Rig count in recent weeks. WTI traded at a price slightly below $68 before the release of the inventory data. This was the lower end in its recent range. After the drawdown, however, prices rose above $68.
Ole Hansen of Saxo Bank’s Commodities Strategy, describes oil as “well and truly stuck and range-bound,” It absorbs all the news. Bloomberg’s Grant Smith stated that oil spreads signal a global oversupply. This is a warning sign for OPEC+. Goldman analysts said that spreads would continue to be challenged due to the pessimism about demand and high rates of interest.
As the market digests different factors that influence supply and demand dynamics, overall, oil prices are still within a narrow range.