Oil prices stabilize as bullish and bearish catalysts clash

Last week, crude oil prices posted their biggest one-week loss in nearly two years thanks to an apparent breakthrough in peace talks between Russia and Ukraine. First-month US WTI crude (CL1:COM) plunged 12.8% to $99.27/bbl and while Brent (CO1:COM) fell 11.1% to $104.39/bbl , the largest weekly percentage declines for both benchmarks since late April 2020.

There was no shortage of bearish news for the oil markets.

Earlier, European countries backed off from threats to sanction Russian oil after Russia promised to scale back military operations in northern Ukraine. The promise raised hopes that the war in Ukraine might finally begin to deescalate.

Russia could still be lining up for new sanctions, however: the flow of ‘Blood money’ to Russia must stop, Kyiv mayor says as the West prepares new sanctions against Moscow after dead civilians are found on the streets of a Ukrainian town seized from Russian invaders. Since Russian forces withdrew from northern Ukraine, turning their assault south and east, dark images of the city of Bucha near kyiv, including a mass grave and tied up bodies of people shot at close range, sparked international outrage.

Upside risks from the disruption of Russian exports were offset by downside risks from the recession and coronavirus outbreaks in China.

Markets reacted negatively after Shanghai has extended citywide lockdowns. Lockdowns have been imposed indefinitely amid growing public anger over quarantine rules after citywide testing saw new COVID-19 cases soar to more than 13,000. China’s zero COVID strategy is likely lead to even more blockages that could drastically reduce demand for the Asian giant’s oil. China is the world’s largest importer of crudeand lower demand could help ease market stress.

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Meanwhile, rising oil prices have skidded after President Biden said on Thursday that the United States would release 180 million barrels from the Strategic Petroleum Reserve over the next six months as part of the largest release in the history of the RPD, while threatening to impose sanctions on domestic drillers. for not using federal oil permits.

The SPR’s decision “could prevent oil prices from skyrocketing above $150, and in the short term will weigh on prices. However, with the war still ongoing and Putin demanding to be paid in rubles… it’s not going to crush the price of oil“Spartan’s Peter Cardillo told the the wall street journal.

Member states of the International Energy Agency “IEA” also plan to release their own strategic oil reserves. At a press conference last Thursday, President Biden said he expected allies to release 30-50MB, in addition to the US version.

Hedge funds dumping oil

With all of these negative catalysts, it’s no surprise that the mood among oil buyers has dampened somewhat.

According to Reuters, hedge funds and other fund managers sold the equivalent of 15 million barrels in the six largest oil futures and options contracts in the week to March 29, including the liquidation of 10 million barrels of previous bullish long positions and the initiation of 6 million barrels of new bearish short positions.

That marked a sharp reversal from purchases of 16 million barrels the previous week – and could have been worse since the report came before the Biden administration announced the SPR.

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Oil fund cash flows also suggest the sector may be overbought.

After raising $1.75 billion in the past year, the SPDR Energy Select Sector Fund (NYSEARCA:XLE) posted $1.46 billion outflows in March as Russia’s war on Ukraine sheds light on energy security and also signifies a potential top for oil and gas stocks as market players take profits. In contrast, renewable energy funds to have recorded $642 million in inflows during the month from March, breaking a 3-month losing streak that saw $1.9 billion out. High and volatile oil and gas prices have made the case for renewable energy more attractive.

That said, the funds remain significantly more optimistic about the outlook for refined fuels and middle distillates rather than crude, reflecting the low levels of diesel and gas oil inventories around the world. Even in distillates, however, the uptrend stems from low inventories and the impact of the conflict on Russian exports has been tempered by concerns about economic slowdowns evident in the United States, Europe, China and the rest of Asia.

By Alex Kimani for Oilprice.com

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