Oil Declines As Demand Fears Rise, Despite Huge U.S. Stock Draw

Meanwhile, Asia continues to snap up Russian oil: File Image/Pixabay

Oil on Wednesday extended its losses, this time to the tune of 2 percent, as the U.S. dollar strengthened and fears intensified that impending interest rate hikes could curb energy demand.

Brent settled down $1.65, or 2 percent, at $83.12 per barrel and West Texas Intermediate for May settled down $1.70, or 2.1 percent, at $79.16 (the June contract also lost 2.1 percent to settle at $79.24).

Ritterbusch and Associates told clients in a note, "The crude benchmarks are posting ... lows ... in response to a strengthening in the U.S. dollar that is, in turn, weighing on risky assets following some hot inflation data out of Europe."

The note went on to state that "We still believe that the market has been too focused on the supply side of the global oil equation following the OPEC output cuts and that world oil demand is significantly weaker than widely perceived."

Meanwhile, stock markets in China closed lower on Wednesday due to mixed first-quarter economic data showing that while consumption, services and infrastructure spending have perked up, factory production has lagged, and slowing prices and surging bank savings are raising doubts about demand.

This seemed to conflict with reports in the previous session that China's economy grew more than calculated, by 4.5 percent in the first quarter, according to the National Bureau of Statistics, compared with expectations for a 2.2 percent increase and a revised 0.6 percent rise in the previous quarter.

While some analysts assumed an expected U.S. stock draw would support oil prices on Wednesday, reports that inventories fell by a bigger-than-expected 4.6 million barrels last week did nothing to sway traders.

That's possibly because implied gasoline demand fell 3.9 percent from year-ago levels, and gasoline stocks built unexpectedly by 1.3 million barrels in the week to 223.5 million barrels, according to the Energy Information Administration.

Andrew Lipow, president of Lipow Oil Associates, said, "The total crude oil inventory draw of over 6 million barrels between the SPR and commercial stocks is supportive of the market even though product inventories were scarcely changed."

In other oil related news on Wednesday,  traders and Reuters calculations showed that Asian refiners have continued to buy Russian crude in April, with India and China purchasing the majority of oil at prices above the price cap of $60 per barrel.