Oil prices are stabilizing as bullish and bearish catalysts collide

Last week, crude oil prices announced their largest one-week loss in nearly two years thanks to an apparent breakthrough in peace talks between Russia and Ukraine. First-month US WTI crude (CL1: COM) fell 12.8% to $ 99.27 / barrel, and while Brent (CO1: COM) fell 11.1% to $ 104.39 / barrel, the largest weekly percentage declines for both benchmarks since the end of April 2020.

There was no shortage of bearish news for the oil markets.

Earlier, European countries backtracked on threats to sanction Russian oil after Russia promised to scale down military operations in northern Ukraine. The promise raised hopes that the war in Ukraine may finally begin to escalate.

However, Russia may still be queuing up for new sanctions: the power off “bloody money” for Russia must stop, the mayor of Kiev has said en The West is preparing new sanctions against Moscow after dead civilians were found along the streets of a Ukrainian city that has been captured by Russian invaders. Since Russian forces withdrew from northern Ukraine and turned their attacks to the south and east, gloomy pictures from the city of Bucha near Kiev, including a mass grave and bound corpses of people shot at close range, has aroused international outrage.

Upward risks from the disruption of Russian exports have been met by downward risks from recession and China’s coronavirus outbreak.

The markets reacted negatively afterwards Shanghai extended lockdowns to the entire city. The barriers have been introduced indefinitely amid growing public anger over quarantine rules after city-wide testing saw new COVID-19 cases rise to more than 13,000. China’s zero-COVID strategy is likely to lead to even more lockdowns that are likely to lower oil demand significantly for the Asian giant. China is the world’s largest importer of crude oiland declining demand can help ease market tightening.

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Meanwhile, the oil price bull run has hit the slides after President Biden on Thursday said the United States would release 180 million barrels from the strategic petroleum reserve over the next six months in the largest release in SPR history, while threatening to impose penalties on domestic drillers . for non-use of federal oil permits.

The SPR movement “can stop oil prices from rising to $ 150 plus, and in the short term will weigh on prices. But with war still going on and Putin demanding to be paid in rubles … it is not going to crush the price of oil“Spartan’s Peter Cardillo has said Wall Street Journal.

The International Energy Agency’s “IEA” member countries are also planning to release their own strategic oil reserves. During a news conference last Thursday, President Biden said he expected the Allies to release 30-50 MB, in addition to the US release.

Hedge funds that dump oil

With all these negative catalysts, it is hardly surprising that the oil buying sentiment has dampened somewhat.

According to Reuters, hedge funds and other money managers sold the equivalent of 15 million barrels in the six major petroleum futures and options contracts in the week to March 29, including the winding up of 10 million barrels of previously bullish long positions and the initiation of 6 million barrels of new bearish short positions.

It marked a sharp turnaround from the purchase of 16 million barrels the previous week – and could have been worse since the report came before the SPR announcement from the Biden administration.

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Cash flows from oil funds also suggest that the sector may be overbought.

After drawing 1.75 billion. USD into over the past year, has Energy Select Sector SPDR Fund (NYSEARCA: XLE) has recorded $ 1.46 billion. in outflow in March, as Russia’s war against Ukraine focuses on energy security and also marks a potential peak for oil and gas stocks when market participants take profits. In contrast, renewable energy funds have recorded $ 642 million in inflows for the month March, and broke a 3-month loss series that yielded $ 1.9 billion. in outflow. Higher and volatile oil and gas prices have made the issue of renewable energy more attractive.

That said, the funds remain significantly more positive in terms of the prospects for refined fuels and intermediate distillates rather than crude oil, reflecting the low level of diesel and gas oil reserves around the world. Even in distillates, however, bullishness stems from low inventories, and the impact of the conflict on Russia’s exports was dampened by concerns about economic downturns, which are evident in the US, Europe, China and the rest of Asia.

By Alex Kimani for Oilprice.com

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