Brent and WTI crude oil prices closed lower by about 4% last week to $83/b and $76,50/b respectively, on concerns over a U. S oil supply glut, hawkish Fed commentary, and stronger dollar despite optimism over China’s fuel demand recovery, and Russian output cuts.
U.S.-based WTI crude oil has fallen in three of the past four weeks, losing nearly 7% in that stretch, in response to a potential supply glut in the country following the inventory build, the SPR sales, and surging shale oil production.
Investors turned bearish last week after the United States reported higher-than-expected crude and gasoline inventories builds over the prior week.
On top of that, the Biden administration also announced plans to release 26 million barrels of crude from the SPR-Strategic Petroleum Reserve which could lead to higher stockpiles at Cushing, Oklahoma, the delivery point for WTI contracts, until May.
An economic slowdown could harm fuel demand:
Oil prices have received further pressure lately as investors expect that the stronger-than-expected macroeconomics data (CPI, PPI, jobs reports) could lead to more interest rate hikes by the world’s largest central banks such as the Federal Reserve, ECB, and Bank of England.
Surging interest rates could depress economic activity this year in some of the largest petroleum consumers in the world such as the U.S., China, India, the UK, and the Eurozone, which in turn could fuel a slowdown in oil demand.
Furthermore, a more hawkish Federal Reserve could strengthen the U.S. dollar, making dollar-denominated crude oil more expensive for buyers of other currencies.
Global supply outlook:
Last week, the downward pressure on oil prices came despite the production cuts by Russia and OPEC+ alliance.
Russia plans to cut oil production by 500,000 barrels a day, or around 5% of output in March, in response to the Western powers imposing price caps on its oil and oil products.
This is coming in the heels of pulling out more barrels of oil from the global market, increasing concerns for future oil supply shortages, after the Organization of the Petroleum Exporting Countries and allies, a group known as OPEC+, last October stated it would cut oil production targets by 2 million barrels per day until the end of 2023.