Oil futures headed higher on Wednesday, as skepticism emerged over progress made a day earlier in negotiations with Russia to bring an end to the war in Ukraine, renewing worries about crude supplies in region.
Prices continued higher after U.S. government data showed a weekly decline in crude inventories, and a climb in stocks of gasoline and distillates.
West Texas Intermediate crude for May delivery
rose $3.44, or 3.3%, to $107.68 a barrel on the New York Mercantile Exchange after posting a loss of 1.6% on Tuesday.
May natural gas
rose 4.4% to $5.565 per million British thermal units.
Oil prices clawed back Tuesday’s losses and then some. Tuesday’s decline came as hopes over signs of progress between Russian and Ukraine negotiators drove investors out of the commodity. Russia’s Deputy Defense Minister Alexander Fomin reportedly said his country would decrease military activity in the direction of Kyiv and Chernihiv.
But Kremlin spokesman Dmitry Peskov was reported as saying Wednesday that Russia hadn’t noticed anything “really promising” those Ukraine proposals on Tuesday.
Ukrainian President Volodymyr Zelensky and U.S. officials also cast doubt on whether any pledge to pull Russian troops back amounted to a shift. Pentagon spokesman John Kirby said the U.S. had detected a small number of Russian ground forces backing away from Kyiv, but it looked like forces were just being repositioned.
War in Ukraine: Russia pledge to scale back some operations draws skepticism
The slide in crude this week, which has at times surpassed 10%, “has made it even less likely that OPEC+ will decide at its meeting tomorrow to step up its production to a greater extent,” said Carsten Fritsch, analyst at Commerzbank, in a note to clients.
Price losses due to the “lockdown in Shanghai on Monday will probably make OPEC+ even more cautious as far as any risks to oil demand are concerned,” said Fritsch.
Analysts expect OPEC+ — the Organization of the Petroleum Exporting Countries and its allies, including Russia — will stick to its plan to boost production by another 400,000 barrels a day in May at its meeting on Thursday.
In a July meeting last year, OPEC+ said that starting May 1, 2022, baseline output for the group would see a modest increase for some members, but the group as whole has been unable to meet their full production quotas.
Troy Vincent, senior market analyst at DTN, told MarketWatch that he does not expect the revised baselines to change the course of the monthly 400,000 barrel per day unwinding of output cuts. “While this baseline change may slightly impact individual member’s share of the rising output going forward, it shouldn’t impact the total volume,” he said. That said “the communication from OPEC around what the impact of baseline changes means has been scant.”
Elsewhere, Poland announced a plan to wean itself off Russian oil imports by the end of 2022, while Germany triggered an early warning over natural gas supplies, calling on consumers to conserve energy amid Russia’s demand that it pay for the commodity in rubles.
The Energy Information Administration reported on Wednesday that U.S. crude inventories declined by 3.4 million barrels for the week ended March 25, down a second straight week.
On average, the EIA was expected to show crude inventories down by 1.7 million barrels, according to analysts surveyed by S&P Global Commodity Insights. The American Petroleum Institute on Tuesday reported a 3 million-barrel decrease, according to sources.
The EIA also reported weekly inventory increases of 800,000 barrels for gasoline and 1.4 million barrels for distillates. The analyst survey showed expectations for weekly supply declines of 1.9 million barrels for gasoline and 1.5 million barrels for distillates.
Both gasoline and distillate supplies rose as “implied demand has dropped for both,” especially for distillates, said Matt Smith, lead oil analyst, Americas, at Kpler.
Crude stocks at the Cushing, Okla., Nymex delivery hub edged down by 1 million barrels for the week, while stocks in the Strategic Petroleum Reserve fell by 3 million barrels, EIA data showed.