By Barani Krishnan
Investing.com -- For a second time in a fortnight, U.S. crude prices broke below the $100-per barrel support, even ending under that mark on Tuesday.
And once again, oil bulls will likely be counting on weekly U.S. inventory data to restore the market’s upside.
Brent crude, the London-traded global benchmark for oil, settled down $3.48, or 3.3%, at $102.46 a barrel, after an intraday low at $101.73.
After a 6% rally in two previous weeks on speculation that Europe was nearing a much-awaited ban on Russian oil, Brent had given back 9% week-to-date on worries that the United States might fall into a recession from aggressive rate hikes by the Federal Reserve to beat inflation growing at its fastest pace in 40 years.
But it was U.S. crude that was on the radar of oil bears on Tuesday.
New York-traded West Texas Intermediate, or WTI, the benchmark for U.S. crude, settled Tuesday’s trade down $3.33, or 3.2%, at $99.76.
WTI hit a session low of $98.91 earlier, its lowest since the $97.06 bottom of April 26.
The U.S. crude benchmark gained almost 8% in two previous weeks of trade to concede almost 10% within the first two days of this week.
Tuesday’s slump in crude prices came as the American Automobile Association reported the average price of gasoline across US pumps at a record high of $4.37 a gallon.
Central bank officials at the Federal Reserve were, meanwhile, debating the possibility of a 75-basis point rate hike when they meet in June, after instituting increases of 50-bps and 25 bps at their May and March meetings, respectively. Those will be the highest U.S. rate hikes in at least a generation as the Fed tries to beat back prices rising at their fastest since the 1980s.
Gasoline prices dipped to as low as $4.07 in April s $4.07 a gallon in April after the Biden administration announced the release of unprecedented volumes of crude oil from the US Strategic Petroleum Reserve, or SPR, in a bid to reduce the global supply strain heightened by the sanctions on Russia.
President Joe Biden authorized his first major SPR withdrawal in November as oil supplies began tightening amid rapid recovery in demand from the coronavirus crisis that pushed up both crude and US fuel prices. Over the past two months, the administration has taken 3 million barrels on the average out of the SPR every week to help meet domestic refiners’ demand for crude in a market seeing a surfeit in fuel consumption amid strong economic recovery from the two-year long coronavirus pandemic.
The administration’s biggest SPR releases commence from this month as it releases a total of 180 million barrels through July — roughly one million barrels per day over the next 180 days. The US Weekly Petroleum Status Report showed that SPR inventories stood at 550 million barrels during the week ended April 29. That was the lowest level of stockpiles in the reserve since December 2001.
While WTI itself has dropped from 14-year highs of $130 to Tuesday’s lows of under $100, gasoline has held stubbornly above the $4 average, prompting Biden to accuse energy companies of price-gouging.
“There's clearly a huge amount of worry about a recession in the markets at the minute as central banks continue to aggressively tighten against the backdrop of a slowing economy and a cost-of-living crisis,” said Craig Erlam, analyst at online trading platform OANDA. “There's a lot of pressure on household budgets and it's only going to intensify as the year progresses which will take its toll.”
But the unwillingness of global oil exporters alliance OPEC+ to turn the taps on more is keeping oil prices “very elevated", Erlam noted, adding that it was “perhaps a sign that we should get used to these higher prices.”
Market participants were also on the lookout on Tuesday for U.S. weekly 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 6. 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 Investing.com expect the EIA to report a crude stockpile drop of 457,000 barrels, versus the 1.3-million barrel rise reported during the week to April 29.
On the gasoline inventory front, the consensus is for a draw of 1.57 million barrels that would add to the 2.23 million-barrel decline in the previous week.
With distillate stockpiles, the expectation is for a drop of 1.31 million barrels versus the prior week’s deficit of 2.34 million.