EU's Dithering And "Universal" Energy Shortage Causes Mixed Crude Trading

Meanwhile, Yawger favours China's slowing demand rate: File Image/Pixabay

Oil traders on Thursday demonstrated rare restraint by causing a minimal uptick in prices of a key U.S. benchmark, as the European Union continued to dither over its proposed Russian embargo and the International Energy Agency reported an "almost universal product shortage."

West Texas Intermediate settled up 42 cents at $106.13 per barrel and Brent settled down 6 cents at $107.45 per barrel after the EU said it may be time to delay a push to ban Russian oil if the bloc can't get Hungary's support.

Ironically, the IEA reported that Russia's oil revenues are up 50 percent this year despite various trade restrictions against the former Soviet Union for its invasion of Ukraine, thanks to eager buyers across Asia and in China and India.

However, reduced flows of Russian refined products such as diesel, fuel oil and naphtha have aggravated tightness in global markets, and the flow was further disrupted by Ukraine itself, whose state-owned Gas TSO announced it would not accept flows through its Sokhranivka entry point, which delivers Russian gas to Europe.

Gas TSO has also blocked gas transport at Novopskov, through which almost a third of gas from Russia to Europe is moved.

In addition to the IEA's portrayal of an extraordinarily tight global fuel market (with diesel inventories in the OECD the lowest since 2008) U.S. distillate stockpiles (which include diesel) fell to the lowest level since 2005 last week and gasoline supplies declined for a sixth week, according to the Energy Information Administration.

Rebecca Babin, senior energy trader at CIBC Private Wealth Management, said, "The products story is starting to be the tail that is wagging the dog in crude; it simply can't be ignored."

Exacerbating the ire of critics who think Washington is a detriment and not an asset to the energy shortage, U.S. president Joe Biden announced he is scrapping planned auctions of drilling rights in the Gulf of Mexico and Alaska's Cook Inlet; he did not say when the next drilling rights in U.S. coastal waters would be sold, leaving critics to complain that the decision deepens uncertainty over the future of the government's offshore oil leasing program.

Meanwhile, a recurring fear of traders – that China's brutal Covid lockdowns will ruin global demand – was actually viewed in a positive light on Thursday by  Bob Yawger, director of energy futures at Mizuho.

He said of China's declining economic activity caused by the restrictions, "The slide in demand growth could not come at a better time, with China seemingly on the brink of locking down the capital of Beijing at any given moment."