"Knee Jerk" Response To Stock Build Causes More Losses For Crude, Demand Increase Ignored

Meanwhile, analysts anticipate imminent peace between Russia and Ukraine: File Image/Pixabay

Bearish crude traders on Wednesday caused another session of losses for the commodity, triggered by news that U.S. fuel inventories rose unexpectedly as well as talk that a peace deal between Russia and Ukraine may be imminent.

Brent and West Texas Intermediate settled at their lowest since December 30; the former settled down 49 cents at $72.53 per barrel, while the latter settled down 31 cents at $68.62.

The Energy Information Administration reported that while crude inventories fell by 2.3 million barrels to 430.2 million barrels in the week ended February 21, weekly supply gains of 400,000 barrels were incurred for gasoline and 3.9 million barrels for distillates.

Robert Yawger, analyst at Mizuho, blamed activities north of the 49th parallel for the build: "I think Canadian producers are trying their hardest to jam as many barrels as possible into the Mid-continent" in advance of Washington on March 4 imposing a 10 percent tariff on imports from Canada.

However, Yawger was also surprised by the craven attitude of oil traders: "We had a knee jerk reaction down to the low; it was a bit of a surprise because the crude oil number was a pretty big draw."

Indeed, traders also seemed to overlook the EIA's disclosure that demand for gasoline climbed, with total finished motor gasoline supplied (a proxy for demand) at 8.4 million barrels per day (bpd) in the latest week, versus 8.2 million bpd from a week earlier.

Meanwhile, ING strategists were part of a growing number of pundits who believed that chances for peace between Russia and Ukraine are improving, partly due to an expected minerals deal between the U.S. and Ukraine; they stated in a note, "This would take us a step closer to Russian sanctions being lifted, removing much of the supply uncertainty hanging over the market."

All of this played out against a backdrop of ongoing bearish sentiment driven mainly by economic fears.

Tariq Zahir, managing member at Tyche Capital Advisors, told media that a big move down in bond yields in the last few days raised concerns about economic growth, and with consumer sentiment weak, traders may be "preparing for a possible slowdown on maybe even a recession."

Zahir added, "If consumer sentiment continues to get weak [and] inflation stays sticky, that could hurt demand for energy."