Crude Oil Firms Despite Bearish Outlook for US Inventories

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Tuesday as the volatile, two-sided trade continues with traders weighing the bearish impact of lower Chinese demand against the bullish impact from a plunge in Russian supply. Meanwhile, traders are preparing for inventories reports from the American Petroleum Institute late Tuesday and the Energy Information Administration early Friday.

At 12:36 GMT, June WTI crude oil is trading $99.46, up $0.92 or +0.93% and June Brent crude oil is at $103.94, up $1.62 or +1.58%. On Monday, the United States Oil Fund ETF (USO) settled at $74.68, down $1.63 or -2.14%.

Given the offsetting fundamentals, traders are hoping the domestic reports from the API and EIA provide the necessary insight they need to trade the markets with clarity and conviction. No one really likes a choppy, two-sided trade except the brokers.

Russian Oil Phase-Out Providing Support

The prospect of supply tightness in the physical market related to the phasing out of Russian oil is helping to prop up WTI and Brent crude oil futures. But so far, gains have been limited.

Reuters is reporting the parliamentary parties of Germany’s ruling coalition have called on the government to push ahead with a plan to phase out Russian oil and gas imports “as soon as possible”.

This delay in implementing a total ban on Russian energy products has allowed the release of oil from emergency reserves to do their job and alleviate some of the concerns over tight supply. It has also shifted the focus towards the demand side of the equation.

Traders Playing Waiting Game with China Lockdowns

No one knows how long the lockdowns in China are going to last. So let’ just call it a “known unknown”.

Demand concerns in China, the world’s largest crude oil importer, have been generating downward pressure for weeks. Recently, China’s capital Beijing expanded its COVID-19 mass testing to much of the city of nearly 22 million, as the population braced for an imminent lockdown similar to Shanghai’s stringent curbs.

US Inventories Report Could Signal Resumption of Bearish Tone

Perhaps underpinning today’s market is the announcement of monetary policy support from China’s central bank. Others are saying, however, the intraday rally is likely to be short-lived because of the possibility of increased U.S. supply.

In a bearish signal for oil markets, five analysts polled by Reuters estimated on average that U.S. crude inventories had increased by 2.2 million barrels in the week to April 22.

The poll was conducted ahead of the release of the inventory report from the American Petroleum Institute (API) at 20:30 GMT.

This report can surprise so be prepared. Last week, U.S. crude inventory unexpectedly declined the week-ending April 15.

Crude inventories fell by 4.5 million barrels. Economists were expecting an increase of about 2.5 million barrels.