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Recession fears rose to the forefront again on Wednesday following a surprise build in U.S. crude oil inventories that has shaved over a dollar off Brent and WTI prices in afternoon trading.
On Wednesday at 1:45 p.m., Brent crude was trading down 1.86% at $76.00 per barrel, for a $1.44 loss on the day, while West Texas Intermediate was trading down 2.13% at $72.14 per barrel, for a loss of $1.57 on the day.
Despite the ongoing draws in gasoline and distillates, the market is interpreting the Energy Information Administration’s (EIA) data showing a larger-than-expected crude inventory build as an indication of weaker refinery runs. On Wednesday, the EIA reported a 3-million-barrel inventory build for the week to May 5.
Despite the concerns about the health of the U.S. economy, Data from HFI Research shows that gasoline storage levels remain below the 5-year average ahead of driving season.
Gasoline storage is at the lowest level for this time of the year ahead of the summer driving season. pic.twitter.com/lv6OZELqMt— HFI Research (@HFI_Research) May 10, 2023
This week's surprise crude build hit the market particularly hard due to the comparison with last week’s inventory draw of 1.3 million barrels. However, U.S. crude oil inventories are still 1% below the five-year average for this time of year.
Last week, oil prices hit a 15-month low, though analysts largely seemed to be expecting demand to pick up with the summer driving season and prices to respond in kind, with higher prices near the end of this year. Also contributing to that medium-term optimism are production cuts by OPEC+ that took effect this month, shaving 1.6 million barrels per day off the market. The overriding sentiment is that supply will tighten later in the year as these cuts catch up to the market.
Fears of recession and U.S. bank collapses, however, continue to weigh on expectations, with data showing the extent to which traders and speculators fled oil in the week to May 2 based on these concerns. According to that data, open interest in WTI is at a three-year low, adding to the oil price volatility.
By Tom Kool for Oilprice.com
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Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations