Oil’s Slide Deepens, Prices Fall Another 2% Despite Strong U.S. Consumption

By Barani Krishnan

The oil market is increasingly adopting insights from Wall Street, as seen in recent trading behavior. Big Oil stocks mirrored a downturn in Big Tech on Wednesday, with concerns about U.S. economic growth and profit-taking from last week’s energy rally leading to declines in crude prices, despite encouraging consumption and inventory reports from the government.

West Texas Intermediate (WTI) crude settled down $2.81, or 2.5%, at $109.59. This U.S. crude benchmark has experienced a 4% drop over two trading days after a significant rise of 14.5% in the preceding four sessions, reaching a seven-week high of $114.90 on Monday.

Brent crude followed suit, dropping $2.82, or 2.5%, to close at $109.11. The global crude benchmark has now lost 4.5% over the past two trading days after a prior increase of about 12%, which pushed it to a one-month high of $114.79 on Monday.

The selling pressure on oil intensified on Wednesday, even with largely positive inventory data from the U.S. Energy Information Administration (EIA). The EIA reported an unexpected decrease in crude stockpiles, alongside larger-than-anticipated gasoline consumption for the preceding week.

John Kilduff, a founding partner at an energy hedge fund, referred to the day as typical of a "buy-the-rumor, sell-the-fact" scenario. He noted that market enthusiasts had been betting on favorable drawdown figures for both crude and gasoline, while some opted to cash in on their profits amid incessant worries about the U.S. economy and recession fears.

Wall Street also experienced significant losses, with technology stocks falling over 4% as investor concerns about economic growth resurfaced following a brief respite. The Nasdaq index has dropped roughly 7% for May and is down 26% year-to-date.

Analysts suggest that central banks are presenting bleak forecasts. Even the Federal Reserve is signaling a cautious approach aimed at achieving a softer economic landing, reminiscent of the period leading into a mild recession. The Fed has indicated that it will continue raising interest rates and may slow down the economy if necessary to combat inflation, which is currently at its highest in four decades.

Record fuel prices, with gasoline exceeding $4.50 per gallon and diesel above $6, are contributing to the inflationary pressures and might eventually dampen energy demand as consumers struggle with high costs.

The projected U.S. economic growth for this year is now estimated at 2.4%, which is 0.8% lower than prior forecasts, largely due to the unforeseen negative impacts of the Ukraine conflict, according to S&P Global.

In inventory news, crude levels fell by 3.39 million barrels for the week ending May 13, contrasting with an anticipated increase of 1.38 million barrels by analysts. In the previous week, there had been an increase of 8.49 million barrels.

Additionally, gasoline inventory saw a decline of 4.78 million barrels, while analysts had predicted a decrease of 1.33 million barrels. The prior week recorded a drop of 3.61 million barrels. Conversely, distillate inventories experienced an increase of 1.24 million barrels, in contrast to expectations for a decrease of 800,000 barrels from the previous week’s drop of 913,000 barrels.