Demand fears ease
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6 million barrel US gasoline supply drop boosts rally off bank panic lows
Alaska North Slope crude gained ground March 22, up 95 cents to close at $74.13. West Texas Intermediate and Brent lofted sharply into the close on dovish Federal Reserve comments, following a widely expected quarter point jump in the benchmark federal funds rate from 4.75% to 5%. WTI leapt $1.57 to close at $70.90 and Brent popped $1.37 to close at $76.69.
Prices were supported by a healthy, larger than expected draw on U.S gasoline and distillate fuel reserves.
Total motor gasoline inventories for the week ending March 17 decreased by 6.4 million barrels from the previous week, standing 4% below the five-year average for the time of year, the U.S. Energy Information Administration said in its March 22 report. Distillate fuel inventories fell by 3.3 million barrels for the period, to a level 9% below the five-year average for the time of year.
U.S. commercial crude inventories rose just 1.1 million barrels for the period to 481.2 million barrels, 8% above the five-year average for the time of year.
ANS vaulted $1.55 March 21 to close at $73.17, continuing to claw back losses incurred during a banking panic involving Silicon Valley Bank and Credit Suisse that gripped financial markets in the United States and Europe, and roiled risk markets beginning March 10. WTI leapt $1.69 March 21 to close at $69.33 and Brent jumped $1.53 to close at $75.32.
ANS rose 78 cents March 20 to close at $71.62, as WTI rose 90 cents to close at $67.64 and Brent rose 82 cents to close at $73.79.
ANS experienced a Wednesday to Wednesday lift of $2.43 from its close of $71.70 March 15 to $74.13 March 22.
ANS dropped $1.39 March 17, while WTI plunged $1.61 to close at $66.74 and Brent plunged $1.73 to close at $72.97.
Prices rose March 16, with ANS up 52 cents to close at $72.23, WTI up $74 cents to close at $68.35 and Brent up a dollar to $74.70.
Dollar slides on bank bailout moveAt the March 22 Fed press session, Fed Chairman Powell in prepared remarks said the actions the Fed has taken to provide liquidity to the troubled venture capital-related banks “demonstrate that depositors’ savings and the banking system are safe.”
On March 19, the Fed announced an “enhancement in currency swap lines,” to relieve stress in global dollar liquidity, Brian Rich said in Pro Perspectives March 20.
“In times of uncertainty, global banks tend to scramble for U.S. dollars, to meet dollar-denominated liabilities,” Rich said. “And just as the Fed did in the Global Financial Crisis, they have to give these banks access to dollars, to avert a collapse in global banking.”
“That’s what they did yesterday, and they did so quickly by giving global central banks likely unlimited access to dollars,” he said.
Rich said the action would likely result in a weaker dollar, and by March 22 the dollar had fallen, supporting the rise in oil prices. Stocks went up, commodities went up and market-determined interest rates went down.
OPEC+ to continue production cutsThe Organization of the Petroleum Exporting Countries and its allied exporting countries will likely hold to previous plans on output cuts of 2 million barrels per day until the end of the year, even after the banking crisis sent crude prices plunging, three delegates told Reuters as per a March 22 report.
Russian Deputy Prime Minister Alexander Novak said March 21 that Moscow will continue with a 500,000 barrel per day production cut it announced in February, lasting until the end of June.
“This is only a unilateral cut of Russia,” a delegate said, adding, “No changes for the group until the end of year.”
A third delegate said the oil prices rout was related to speculation in the financial market, not market fundamentals.
Pierre Andurand of Andurand Capital agreed. The bank panic oil price swoon not only is speculative, but oil will hit $140 a barrel by the end of the year, Andurand told the FT Commodities Global Summit in Lausanne, Switzerland.
Eventually, electric vehicles will sap gasoline demand and cause oil demand growth to slow in the coming years and demand will peak around 2030, Andurand said.
“Even when we peak, oil demand won't fall down so fast,” he said. “We will reach peak demand towards 110 million barrels per day and then a slow decline from there.”
Warren Buffet is bullish on oil as well.
In March Buffett took advantage of six-month lows to acquire another 13 million shares in Occidental for $800 million, Forbes reported March 21.
With the purchases, Berkshire Hathaway’s equity stake in Oxy rises to 23%, worth $12.5 billion, Forbes said.
Berkshire also holds warrants to buy some 9% of the company for $5 billion, plus $10 billion of preferred stock, which pays $200 million in dividends per quarter.
President Joe Biden - after selling off more than 250 million barrels from the Strategic Petroleum Reserve to lower gasoline prices - should be in the market for oil as well. Biden promised to refill the SPR when prices went below $70.
That target has been reached, but as of March 17, crude in the SPR remains at 371.6 million barrels, unchanged from the previous week, the EIA reported.