Crude Oil Market Slides Despite Draw in US Stockpiles

By Adedapo Adesanya

The crude oil market slid about 2 per cent to a two-week low on Wednesday despite a sharp decline in US crude inventories as the American Dollar strengthened.

Brent futures fell by $1.65 or 2.0 per cent to settle at $83.12 per barrel during the session, as the US West Texas Intermediate crude (WTI) fell by $1.70 or 2.1 per cent to trade at $79.16 per barrel.

The US Dollar has been strengthening alongside interest rate hikes, making Dollar-denominated oil more expensive for holders of other currencies.

This is as fears loom that the continued US Federal Reserve interest rate hikes could curb energy demand in the world’s top consumer, China.

A stronger US Dollar can hurt global demand for oil by making it more expensive in other countries.

Traders are betting the US Federal Reserve will raise its lending rate in May by another quarter of a percentage point.

This overshadowed positive news after the US Energy Information Administration (EIA) reported an inventory draw of 4.6 million barrels for the week to April 14 compared with a modest build in crude oil inventories for the previous week at 600,000 barrels. For the week before that, however, the EIA had estimated a sizeable draw of 3.7 million barrels.

Investors were also discouraged by the persistent high inflation in Europe and uneven economic data in China, the world’s biggest crude importer.

European Central Bank (ECB) officials remained wary of inflation and have suggested further rate hikes also.

At the same time, strong GDP growth and oil refining data from China mitigated any major losses from the rate hike fears.

China’s economy expanded at a rate of 4.5 per cent during the first quarter, which was more than expected.

Meanwhile, refining throughput rates in the world’s largest importer hit a record in March, ahead of the start of maintenance season.

“Having failed to build on the OPEC+ production news a couple of weeks of ago, the market could now be exposed to some long liquidation from recently established longs,” Saxo Bank analysts said on Wednesday.

This joined warnings that the output cuts announced by the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) risked worsening an oil supply deficit expected in the second half of this year.