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Oil falls belatedly on U.S. stock build, but dollar dip saves bulls’ hide

Published 2023-02-09, 03:30 p/m
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By Barani Krishnan

Investing.com -- Oil’s fundamentals-defying rally came to a stop on Thursday. But a drop in the dollar prevented a harder selloff in crude contracts that bucked beefy stockpile builds across the U.S. petroleum complex last week.

New York-traded West Texas Intermediate, or WTI, crude for March settled down 41 cents, or 0.5%, at $78.06 per barrel.

The U.S. crude benchmark rose nearly 7% in the past three sessions to almost erase last week’s 7.5% drop. That plunge came on the back of recession fears and uncertainty in U.S. interest rate direction after bumper job and wage gains among Americans in January threatened to once again ratchet up inflation. 

London-traded Brent crude for March delivery settled Thursday's regular session down 59 cents, or 0.7%, at $84.50. Like WTI, Brent gained nearly 7% between Monday and Wednesday, after a 7.5% tumble last week.

Oil earlier rallied this week on the premise that Chinese refiners would add exponentially to imports this month as the country returns from the long Lunar New Year break and into an environment free of COVID-19 restrictions which had previously hampered demand.

But Chinese import data supporting such a run-up will likely not emerge for weeks. Meanwhile, the latest available data showed the world’s largest crude importer bought 10.98 million bpd, or barrels per day, in January, down from December's 11.37M bpd and November's 11.42M bpd.

“Energy traders are still waiting to see how robust China’s recovery will be. Air travel demand should pick up but some hesitancy from Chinese passengers over COVID fears remain and on high costs,” said Ed Moya, analyst at online trading platform OANDA. 

“WTI crude looks like it might be stuck below the $80 level until we have a clearer picture of China’s crude demand outlook and if risk appetite can hold up if we have a hotter-than-expected Valentine’s Day inflation report,” added Moya.

Running counter to the bullish sentiment were large builds across the board in crude, gasoline and distillates in the Weekly Petroleum Status Report released by the U.S. Energy Information Administration on Wednesday. Instead of using the data to correct crude’s 4% rally from the previous session, traders saw it fit to send the market up another 1.7% on Wednesday.

Also promptly ignored was news that Turkey had resumed crude-oil flows to the Mediterranean export terminal of Ceyhan late on Tuesday following two devastating earthquakes in the region. Operations at the 1M barrel-per-day export terminal, which provides Azeri crude oil to international markets, were halted on Monday and were supposed to have remained shut until the end of Wednesday at least. The only material casualty from the shutdown was a force majeure announced by BP (NYSE:BP).

The other remotely bullish thing for oil this week has been the weaker dollar, though the greenback’s slide has also been marginal as forex traders remained split over the near-term direction for U.S. interest rates amid sticky inflation.

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