Alaska North Slope crude dove $4.05 May 18 to close at $113.66 per barrel, while West Texas Intermediate dropped $2.81 to close at $109.59 and Brent dropped $2.82 to close at $109.11.
The downward move coincided with a sharp downturn in U.S. equity prices.
“The market is extremely volatile so any little news or stock market sell off” can cause outsized swings in crude markets, Dennis Kissler, senior vice president of trading, BOK Financial told Bloomberg May 18. “The fundamentals remain bullish.”
Indeed, U.S. commercial crude oil inventories slid by 3.4 million barrels for the week ending May 13, the U.S. Energy Information Administration reported May 18. At 420.8 million barrels, inventories were 14% below the 5-year average for the time of year.
Gasoline inventories fell also, down 4.8 million barrels on the week, reaching a level 8% below the 5-year average for the time of year as the summer driving season approaches.
The slide in prices - which broke a rally that took ANS above $118 - started May 17, coinciding with reports that the Biden administration was moving to ease oil sanctions on Venezuela for Chevron to negotiate and potentially restart operations there.
“The perception that we could see some more supply coming, Venezuela coming into the market, along with the equity markets, it’s causing some profit taking in a much-needed technical correction in the crude,” Kissler told CNBC May 17.
ANS slipped 89 cents May 17 to close at $117.71, as WTI fell $1.80 to close at $112.40 and Brent slid $2.31 to close at $111.93.
ANS extended its premium over Brent, closing a colossal $5.78 above the European benchmark on the day to reflect strong West Coast demand for the Alaskan product to replace banned Russian crude.
Notably, on the price differential front, WTI notched a 47 cent premium over Brent on the day, upsetting a long-held relationship between the benchmarks in which Brent is the pricier of the two.
The relative strength of WTI may stem from the drop in U.S. oil and gasoline inventories, possibly coupled with demand weakness in Europe due to energy supply disruptions as the EU scrambles to replace Russian oil, natural gas, and refined products.
Traditionally, Brent - which reflects North Sea crude - is more easily shipped out to capitalize on higher prices, while WTI has been somewhat landlocked and more at the will of central U.S. markets. The isolation of WTI is less of a factor now due to infrastructure additions that facilitate ocean shipping of WTI oil, at a time when Brent oil is needed closer to home due to the war-stoked undesirability of supplies from Russia.
Long-term, the course of the relationship is yet to be determined; WTI held a premium over Brent on May 18 as well.
ANS rose $2.61 May 16 to close at $118.59, while WTI leapt $3.71 to close at $114.20 and Brent jumped $2.69 to close at $114.24.
At its May 16 close, ANS was the most valuable of the world’s major benchmark crudes, despite a strong showing by OPEC basket crude at $117.20.
ANS popped $3.60 higher May 13 to close at $115.99, as WTI leapt $4.36 to close at $110.49 and Brent leapt $4.10 to close at $111.55.
On May 11, ANS closed at $111.79, WTI settled at $105.71 and Brent settled at $107.51. Wednesday to Wednesday, ANS closed $1.87 higher on May 18.
Sleeping dragon
COVID-19 lockdowns are inflicting considerable damage on the Chinese economy.
Currently, concerns over oil demand in China are holding prices in check. Some 46 cities are under lockdown, hitting travel, shopping and manufacturing.
April retail sales fell 11.1% year-over-year, versus a 6.1% slowdown projected by a Reuters poll.
Industrial production was expected to post a slight increase, but it ended up falling 2.9%. China processed 11% less oil in April, with daily throughput hitting at the lowest level since March 2020.
The lockdown situation seems to be getting worse.
Goldman Sachs analysts cut their forecast May 17 for China’s GDP to 4% from 4.5%. The International Monetary Fund reduced its China growth forecast for the second time this year, to 4.4%, well shy of China’s official target of 5.5%.
For the five major car companies in Shanghai, production plunged by 75% in April from March, the China Passenger Car Association said.
Beijing reported more new cases May 17, while Tianjin’s Binhai area put another area under lockdown, according to a May 17 Bloomberg report.
The unemployment rate in China’s 31 largest cities hit a new high of 6.7% in April, according to data going back at least to 2018, according to a May 15 CNBC report.
The unemployment rate across cities rose by 0.3% from March levels to reach 6.1% in April, it said, adding that the jobless rate in the 16 to 24 age group was three times higher at 18.2%.
But there is light at the end of the tunnel.
Shanghai city announced May 15 that it would begin to allow restaurants to reopen gradually, and it said May 16 that it planned to resume normal production and life by the middle of June.
Despite the draconian lockdowns in the world’s second largest oil consumer (after the United States), oil prices remain above $100.
The lockdowns are artificial, and temporary. Once the sleeping dragon awakens, the tailwinds for oil prices will be fearsome.
