Oil Plummets As Traders Fully Succumb To Demand Fears

But demand - at least in the U.S. - continues to prevail: File Image/Pixabay

Oil trading on Wednesday saw a dramatic extension of the previous session's losses, with a near 4 percent drop due to fears of further interest rate hikes that could ruin fuel demand growth.

Ironically, Wednesday also saw further signs of demand resiliency, at least in the U.S., which according to the Energy Information Administration enjoyed a crude inventory decline of 5.1 million barrels to 460.9 million barrels, far exceeding expectations for a 1.5 million draw.

Brent settled down $3.08, or 3.8 percent, at $77.69 per barrel, and West Texas Intermediate settled down $2.77, or 3.6 percent, at $74.30 per barrel.

Rebecca Babin, a senior energy trader at CIBC Private Wealth, thought the stock draw was remarkable. "This is a strong number," she said, adding that " but it is not really being reflected in price action because the market wants to see the China demand story play out and is still betting the U.S. slows down significantly in the second half."

Jim Ritterbusch, president of Ritterbusch and Associates, offered his two cents' worth: "The complex appears more focused on a recession that may be well under way rather than some current EIA statistics that have generally been tilting bullish."

For his part, Matt Smith, lead oil analyst for the Americas at Kpler, predicted that oil trading would continue its roller coaster ride for the foreseeable future.

He said, "Refinery runs are set to climb in the weeks ahead, boosting the demand side of the ledger, but countering this is the expectation of lower crude exports, as the tightening of the Brent-WTI spread weighs on buying appetite."

Despite Wednesday's fear-driven trading, crude is still up from a 15-month low reached in mid-March amid the turmoil in the global banking sector.

Also on Wednesday was the latest update on the questionable efficacy of the European Union-led price caps on Russian oil: according to a study of trade and shipping data by KSE Institute, almost all the oil from the Pacific port of Kozmino sold for well above the $60 cap and over half the shipments were carried out using some type of G-7 service.

KSE researchers said, "The fact that a substantial share of voyages from Kozmino involves Western-owned and/or -insured vessels while essentially all transactions show prices above $60/barrel points to potentially considerable price cap violations."