Oil futures settled lower on Monday, with both major crude benchmarks on track for February losses after the penultimate session of the month.
The U.S. benchmark has suffered as the U.S. government reported nine weekly gains in a row for crude inventories, while uncertainty about the global economic outlook and a rebound by the U.S. dollar have also kept a lid on prices, analysts said.
Price action
- West Texas Intermediate crude for April delivery CL00,
-0.84% CL.1,-0.84% CLJ23,-0.84% fell 64 cents, or 0.8%, to settle at $75.68 a barrel on the New York Mercantile Exchange. The U.S. benchmark traded down by 4% month to date. - April Brent crude BRNJ23,
-0.15% , the global benchmark, fell 71 cents, or nearly 0.9%, to $82.45 a barrel on ICE Futures Europe. The front-month contract, which expires at the end of Tuesday’s session, was poised for a monthly loss of 2.4%. May Brent BRN00,-0.01% BRNK23,-0.01% , the global benchmark, edged down 78 cents, or 0.9%, to $82.04 a barrel. - Back on Nymex, March gasoline rose 0.4% to $2.3683 a gallon, while March heating oil HOH23,
+0.49% rose 0.8% to $2.8198 a gallon. - April natural gas NGJ23,
+6.67% rose 7.2% to $2.731 per million British thermal units.
Market drivers
“The downbeat mood reflects the continued buildup of crude inventories week after week despite talks of a tight market,” Manish Raj, managing director at Velandera Energy Partners, told MarketWatch. “Clearly, the physical market isn’t as tight as the market chatter portrays it to be.”
“‘Clearly, the physical market isn’t as tight as the market chatter portrays it to be.’”
— Manish Raj, Velandera Energy Partners
The U.S. Energy Information Administration reported a 7.6 million–barrel rise in domestic crude inventories for the week ended Feb. 17 — that marked a ninth weekly increase in a row.
The only times commercial inventories have been higher were during the glut of 2016-17 and in the early days of the pandemic in 2020, said Alex Kuptsikevich, senior market analyst at FxPro, in a note. Crude supplies are now 15.1% higher than one year ago, he noted.
Sharply rising inventories have seen U.S. production stabilize at 12.3 million barrels a day over the past three weeks, the analyst said, and in comparison to the ramp-up in production from mid-2011 to mid-2015 and from October 2016 to March 2020, output is now seeing a “creeping increase,” signaling the U.S. is in no hurry to regain the market share that Russia and the Organization of the Petroleum Exporting Countries are losing, Kuptsikevich said.
Raj said the “resilience of Russian barrels, both crude and refined, has surprised the market as oil continues to flow unabated.” Every barrel “displaced from Europe,” Raj said, “has found its way to buyers elsewhere, and therefore the much talked about shortage is yet to materialize.”
Read: The real impact of Russia’s invasion of Ukraine on commodities
Still, Russia unexpectedly halted flows of oil to Poland via the Druzhba pipeline over the weekend, news reports said. The pipeline supplied around 400,000 barrels a day of crude into Europe, mainly via Poland, in recent months, said analysts at ING. PKN Orlen SA, Poland’s largest oil company, said the halt wouldn’t immediately affect end users because Russian crude makes up around only 10% of total supply, although a longer disruption could have an impact.
Meanwhile, hot inflation and other economic data have led traders to shift expectations toward more aggressive rate hikes by the Federal Reserve than previously expected. That’s stoked fears of an economic downturn while also lifting the U.S. dollar. A rising dollar can be a headwind for commodities priced in the unit, making them more expensive to users of other currencies.
U.S. inflation data “has renewed concerns over higher interest rates by the Federal Reserve in the near term and overshadowed the supply outages from the Druzhba oil pipeline in Europe,” said commodity strategists at ING in a Monday note.
