Traders Reverse Gears Yet Again, Cause Big Uptick In Oil Prices

Bullish sentiment was supported by Saudi Aramco's dominance and Covid's decline: File Image/Pixabay

No sooner did crude traders in the previous two sessions cause massive losses for oil with their fear that demand would be ruined by inflation and the China lockdowns than they caused an equally spectacular rally on Wednesday – thanks to fuel inventories plunging in advance of the summer driving season.

West Texas Intermediate settled up $5.95 to $105.71 per barrel and Brent settled up $5.05 at $107.51 after the Energy Information Administration reported that U.S. distillate inventories fell to the lowest since May 2005.

The schizophrenic behaviour of traders caused Rebecca Babin, senior energy trader at CIBC Private Wealth Management, to remark, “Trading crude right now is like trying to figure out the mood swings of a teenager.”

Quinn Kiley, a portfolio manager at Tortoise, added that it will be difficult to fulfill refined product demand globally since so many refiners were forced by governments to shut operations for an extended period of time during the pandemic.

Yet more proof on Wednesday of bullish circumstances for oil was the disclosure that Saudi Aramco now trades near the highest on record, and that nine of the top 10 stocks in the S&P 500 Index this year are oil and gas companies: a remarkable recovery for an energy sector that was experiencing considerable challenges prior to the end of worldwide Covid restriction mandates.

Meanwhile, trading sentiment was further fortified by news that Shanghai reported a 51 percent drop in new coronavirus infections with zero cases in the community – enough for the city to end its brutal lockdowns that caused supply chain chaos and a massive drop in productivity.

Still, while soaring inflation may not yet be negatively affecting demand it is having an impact on the ability of that demand to be fulfilled: the EIA reported that U.S. crude output last week fell 100,000 barrels to 11.8 million barrels per day after holding steady over the previous three weeks – an indication that rising costs may be dissuading drillers from expanding production.

As for trading volatility, a new factor that virtually guarantees its continuation is No Oil Producing and Exporting Cartels (NOPEC): U.S. legislation that would allow antitrust lawsuits against producers such as the Organization of the Petroleum Exporting Countries (OPEC).

OPEC officials warned that the bill would worsen market volatility by driving away investment, and Prince Abdulaziz bin Salman, energy minister for Saudi Arabia, said OPEC was unfairly being blamed for the energy crisis.

For his part, Bjarne Schieldrop, chief analyst of commodities at SEB Bank, remarked, "Saudi Arabia might decide to not go hand-in-hand anymore [with the U.S.] and be more independent from now on ....this [NOPEC legislation] is one of the elements behind [May 11 rise in prices]."