US West Texas Intermediate crude oil prices and international benchmark Brent crude oil futures are marginally higher heading into Wednesday's closing. After being under pressure earlier in the week due to concerns about demand, traders moved their focus to the upside due to persistent concerns about global supply constraints.
Traders remain concerned about the higher dollar impacting on international demand and China's unrelenting clampdown on the spread of coronavirus sapping consumption, but those two concerns appeared to be mitigated by Russia's decision to suspend gas imports to two European countries.
The markets were also supported by another decline in distillate and gasoline stockpiles in the United States, according to a critical weekly government report.
Foreign demand for dollar-denominated oil products is harmed by a strong greenback, or is it?
The US Dollar surged to a multi-year high versus a basket of major currencies on Wednesday, largely due to a decline in the Euro as investors were increasingly concerned about energy supply and a possible recession in the region.
A strong dollar, on paper, is expected to dampen demand for dollar-denominated crude. It may be difficult to see, but crude oil prices have been somewhat restrained since the dollar turned bullish in late March. Nonetheless, Europe requires oil, and the US is eager to deliver it, even at a premium price.
Assume responsibility for this one on Putin and his military machine. Additionally, the European Commission is nearing a decision on whether to impose a ban on Russian energy imports. If they do, the US will become a major provider, and the Euro's depreciation will be irrelevant. The Europeans must locate oil.
Global Demand for US Energy Products Is Highlighted in Weekly EIA Report
Although crude inventories increased by 692,000 barrels to 414.4 million barrels in the week ended April 22, falling short of experts' estimates of a 2 million-barrel increase in a Reuters poll, the markets were buoyed by a decline in US fuel stocks.
Stockpiles of distillates, which include diesel and heating oil, decreased by 1.4 million barrels this week to 107.3 million barrels, the lowest level since May 2008.
What caused the decline in distillate stockpiles? Because the United States continues to export things such as diesel and heating oil.
Stocks of distillates have steadily fallen, in part due to increased demand for American products abroad following Russia's invasion of Ukraine. Russia is the world's largest exporter of refined products, and other nations have blocked Russian oil imports, prompting a search for alternative barrels.
Europe requires diesel fuel to power the vehicles that transport goods throughout the Eurozone. Additionally, Europe need heating oil and coal as alternatives for natural gas, which may become scarce.
Demand for heating oil is also likely to increase as a result of Moscow's suspension of gas shipments to Bulgaria and Poland in response to their refusal to pay in roubles. Conditions could deteriorate worse if Russia decides to cease delivering gas to other countries.
Prospects for the Short Term
Russia appears to be attempting to circumvent the sanctions imposed on it by the majority of the world by turning off gas supplies to two countries. This might have a cascading impact that reaches all the way to the United States' petrol stations.
Although the government attempted to cut gasoline and diesel costs by releasing crude oil from strategic reserves, the policy may fail if the United States continues to sell the energy goods to Europe. Who wouldn't want to do that, especially given that the oil firms are almost certainly compensated in high-priced dollars?
The United States has exported 6.3 million barrels of refined goods per day so far this year, up 25% from the same period last year.
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