Oil Drifts 2nd Day in Row; U.S. Inventory Data Awaited

© Reuters.

By Barani Krishnan

AiVIF.com -- Concerns over the U.S. economy are holding longs in the oil trade from getting to the next place.

Add to that the Biden administration’s zeal to bring crude prices down from their record highs with a potential ban on U.S. crude exports to boost domestic supply, and the rally in oil has good reasons to peter.

For a second day in a row, crude prices drifted almost aimlessly before settling a little lower for New York-traded West Texas Intermediate and slightly higher for the London-based Brent.

WTI for July delivery settled down 52 cents, or 0.5%, at $109.77 a barrel, after rising just a penny in the previous session.

Brent for August delivery was at $111.16 a barrel by 3:00 PM ET (19:00 GMT), up 38 cents, or 0.3% on the day. In the previous session, it rose 87 cents, or 0.8%.

The advance in crude oil prices has slowed over the past two months from the outsized gains prior to April. In contrast, fuel prices at U.S. pumps have climbed relentlessly since March, reaching record highs above $4.50 for gasoline and above $6 for diesel.

Tuesday’s mixed close in crude came after the U.S. Energy Secretary Jennifer Granholm confirmed that an embargo on oil shipments out of the United States was something the Biden administration hasn’t ruled out in order to ease the record highs in fuel prices. "I can confirm the president is not taking any tools off the table," Granholm said.

Added Ed Moya, analyst at online trading platform OANDA:

“Oil prices remain directionless as energy traders try to assess how significant the deceleration in economic activity will be for the short-term crude demand outlook. The oil market remains tight but the Covid situation in China points to a gradual pickup in demand and that might keep this market range-bound a while longer.”

A steady stream of weak U.S. economic data — and a Wall Street on the cusp of bear market territory — have weighed on oil in recent days.

Monthly sales of newly-built homes in the United States, which fell to a two-year low in April, according to data from the Commerce Department on Tuesday that reinforced the notion of a housing market slowing from surging interest and mortgage rates.

The new-home sales numbers came on the heels of data from last week that showed sales of existing homes in the United States down for a third straight month in April as interest and mortgage rates rose. Prior to that, the National Association of Home Builders said home building sentiment — a gauge of domestic construction activity — hit two-year lows in its early survey for May.

Housing and real estate have important roles in the U.S. economy, with roughly 65% of occupied housing units being owner-occupied and making homes a substantial source of household wealth and home construction a key provider of employment. In the 2008/09 financial crisis, a crash in the housing market precipitated what later came to be known as the era of the Great Recession.

Threats to the global economy - a main theme of the Davos meeting this week - were also a reason for the oil market’s anemic sentiment.

China, the world’s largest oil importer, is stepping up quarantine efforts to end its Covid outbreak even as it plans to lift a more than two-month lockdown of its Shanghai business hub.

Economic concerns aside, market participants were on the lookout on Tuesday for weekly U.S. oil inventory data, due after market settlement from API, or the American Petroleum Institute.

The API will release at approximately 4:30 PM ET (20:30 GMT) a snapshot of closing balances on U.S. crude, gasoline and distillates for the week ended May 20. The numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.

For last week, analysts tracked by AiVIF.com expect the EIA to report a crude stockpile drop of 737,000 barrels, versus the 3.39-million barrel reduction reported during the week to May 13.

On the gasoline inventory front, the consensus is for a draw of 643,000 barrels that would add to the previous week’s decline of 4.78 million barrels.

With distillate stockpiles, the expectation is for a climb of 917,000 barrels versus the prior week’s gain of 1.24 million barrels.