Oil sinks as hawkish Fed talk boosts supply-driven bear case

Bloomberg

Oil capped its longest string of daily losses this year as hawkish signals from Federal Reserve officials added to concerns about a glut of crude piling up in storage.
A significant increase in US inventories and a broader risk-off sentiment sparked by the prospect of continued rate hikes from the Fed have weighed on oil this week. The headwinds were exacerbated by the federal government’s plan to continue drawing down the country’s Strategic Petroleum Reserve, with 26 million more barrels set to be released into the market.
Crude has been stuck in a narrow channel since early December. Expectations that China’s return from Covid-19 lockdowns will boost global demand are being tempered by a US economy that’s threatening to tilt into a recession under the weight of Fed hikes.
“The renewed range-bound trade in oil is causing the market to become wary, demanding more cyclical evidence to invest in the structural bull case,” Goldman Sachs Group Inc. analysts led by Jeff Currie wrote in a note to clients.
China’s oil buying spree a boost for global demand outlook
China has ramped up its oil purchases as an expected recovery in the nation’s crude consumption gathers pace following the end of its strict Covid Zero policy, boosting optimism in the outlook for global demand.
The buying has been led by Unipec, the trading arm of refining giant Sinopec. The company has taken long-haul cargoes from West Africa, they said.
There’s a growing chorus of bullish calls that China’s recovery will lead to a rebound in oil prices, with some predicting Brent will climb back above $100 a barrel later this year. Other refiners including China National Chemical Corp. and Rongsheng Petrochemical Co. have also picked up cargoes — including from the US — in the early part of this month’s spot-market cycle.
Refiners are stocking up in anticipation of a demand recovery, and they’d rather be oversupplied than under-supplied, said Michal Meidan, director of the China Energy Research Programme at the Oxford Institute for Energy Studies. Processors were caught off guard with the strength of gasoline demand after Covid-19 restrictions were eased, she added.
The International Energy Agency last week increased its forecasts for global oil demand, citing China’s reopening. Consumption is expected to rise by 2 million barrels a day this year to average 101.9 million barrels a day, according to a monthly report from the Paris-based agency.