Crude Surges Amid Lower-than-expected EIA Inventories

On Wednesday evening March 23 (GMT+3), the US Energy Information Administration (EIA) reported a decrease of 2.508 million barrels in its crude oil inventories for the week of 18 March. This is in contrast to the forecasted increase of 0.114m barrels, and the previous increase of 4.345M.

Meanwhile, a disruption in the Caspian Pipeline Consortium (CPC) pipeline, which carries oil from Kazakhstan to Russia, has initiated further concerns about the crude supplies. The pipeline carries roughly 1.2m barrels of Kazakh crude oil per day, accounting for 1.2% of the global demand.

In addition to bullish US inventory figures and the CPC pipeline disruption, stagnating developments in the Russia-Ukraine conflict have sent the price of oil soaring back up.

Post-Market

At the news, crude jumped over 5% to over US$121 on early Thursday (GMT+3), with Brent futures up 5.3% to US$121.60 and WTI futures up 5% to US$114.93. This increase has brought the price of oil back up from a cooling seen earlier in the week when the outlook on the Russia-Ukraine conflict was more positive.

While the US and Canada have both said they would ban exports from Russia, much of the EU is still reliant on Russian energy, since it buys almost half of what Russia exports. According to data collected by Turkish news agency Anadolu, the EU has paid Russia nearly US$19 billion since the start of the Russia-Ukraine war. In a more recent comment, Moscow has also said that it plans to make certain countries buy Russian natural gas with rubles, in an attempt to buoy its failing currency.

Said Andrew Lipow, president of Lipow Oil Associates in Houston, “until the world can figure out how to replace [Russian] oil we’re going to march on higher until demand destruction takes place”.

As increasing energy prices further stoke worries about inflation, the price of gold has risen, with spot gold jumping over 1% on Wednesday, hitting a high last seen on March 17.

”Investor demand was also boosted by higher energy prices, which will put further pressure on inflation. Adding to the positive backdrop was a fall in US bond yields. Bonds have been selling off amid hawkish comments from the Federal Reserve,” analysts at ANZ Bank said.

Fed chair Jerome Powell’s hawkish comments earlier in the week about inflation that is “much too high” have seen analysts factoring in 50-point hikes during the Fed’s May and June meetings.

According to a report from senior commodity strategist Mike McGlone at Bloomberg Intelligence, “The foundation that launched [gold] to the 2011 peak around $1,920 from about $250 an ounce in 1999 was laid under similar conditions as now: reversion of an overextended stock market facing Fed rate hikes”.

For now, market participants are advised to keep an eye out for the upcoming Initial Jobless Claims data, which will be released on 24 March at 15:30 (GMT+3). As a friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well.