Commodity news - Oil prices slipped nearly 3% on Wednesday, pressured by a rise in U.S. commercial inventories rose, weaker economic data from China and U.S. progress on Ukraine and Israel aid bills.

Commodity news: Oil price falls nearly 3%

In commodity news, Oil prices fell almost 3% on Wednesday as upward pressure from concerns about violence in Ukraine gave way to weaker economic indicators from China and the passage of US legislative support for Ukraine and Israel, according to Reuters.

Brent June crude futures fell $2.44, or 2.7% to $87.58 a barrel by 1310 GMT, while US June crude futures dropped $2.32, or 2.7%, to $83.00 a barrel.

That was the largest daily decline since March 20.

Commodity news: Oil prices drop

Oil prices fell this week because economic problems swamped any geopolitical tension bumps, such as Iran’s 10-missile and three-drone strike against Israel this week, analysts say. The missile and drone assaults on Israel are not expected to prompt strict US oil sanctions on Iran.

John Evans, an analyst at PVM, told Reuters that oil ‘price corrections follow the [war] premium that was built into them’ over the past weeks and months. ‘Supporting prices are the bullish fundamentals,’ Evans said. Adding to the downward pressure, US crude inventories unexpectedly rose by 2.7 million barrels last week, almost double what analysts had predicted.

Adding to the market pressure, US House Speaker Mike Johnson said on Monday that legislation to aid Ukraine and Israel and measures addressing issues with Russia, China, and Iran would be brought forward. The fact that Israel did not respond to Iran’s attack on its nuclear plant came later.

Such news gives us a sense that market nerves are calming, says John Kilduff with Again Capital LLC.

Commodity news: Core inflation hurts markets

Other statistics were noted: although China’s GDP growth figures for the first quarter proved to be slightly stronger-than-expected, most other indicators “point to continued domestic soft patch,” the note added.

This was important given that China is the globe’s largest oil importer: “core” inflation remains tame in the major economies, but it clears expectations for monetary policy – slower than expected inflation in Britain seemed to knock the prospect of a rate cut by the Bank of England from late May into mid-June, while, in the Eurozone, a slowing inflation rate reinforces the prospect that the European Central Bank will cut rates by half a percentage point in June.

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In other commodity news, Tengizchevroil said that it would be conducting a planned maintenance overhaul of one of its production trains at the giant Tengiz oilfield in Kazakhstan starting this month, which would reduce output levels.

Only two days earlier, analysts were speculating that oil prices would have crossed the $100 barrier. But the prospect of slower growth undermining demand spooked oil markets after midday Wednesday, sending crude prices down nearly 3%.

By 12:41 pm ET on Wednesday, Brent crude oil had fallen 3.18% to $87.16 a barrel, losing $2.86 for the day, and WTI had dropped 3.25%, or $2.77, to $82.59 a barrel.

The crude price plunge came after the US Energy Information Administration updated its weekly inventory report Wednesday morning, showing an unexpected build of 2.7 million barrels that drove total inventories to 460 million barrels, as of the week ending April 12, well above the 1.4 million barrels increase predicted by a Reuters poll.

It’s not just politicians who’ve reassessed the impact of recent Iran-related tensions in the Middle East. Oil analysts have also reappraised the revived risk premia, having determined that Iran’s missile and drone barrages on Israel would prompt only moderate sanctions against Iranian crude exports, thus easing concerns over a concerted response that pushes up an oil-based shock to the global economy.

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Despite a forceful show of rhetoric, Israel’s war cabinet has not yet taken a meaningful response to Iran’s missile attacks on Israel (at least two of which were intercepted by the Israeli defense systems).

Iran was thus encouraged to make it look as if they effectively retaliated against the destruction of their diplomatic facilities in Syria. Aside from rhetoric, however, nothing happened.

At the same time, despite the US threat of sanctions, Iran and Israel’s proxy war continues – most obviously in Lebanon. In July 2019, a Hezbollah bombing near the Israeli border wounded 18 people; in kind, Israeli jets struck Hezbollah sites in southern Lebanon.

According to new commodity news figures released this morning from the Joint Organisations Data Initiative, oil demand worldwide jumped by 1.2 million barrels per day (bpd) in February on the month – to lift it to a five-year seasonal high. It means February’s oil use reached its highest level since the financial crisis.

Record oil demand was reported in India which, along with robust gasoline use, lifted demand to new highs.

The data, which come from the Riyadh-based International Energy Forum (IEF) whose members make up the JODI partnership, also show that in February 2024 the combined oil demand of the 38 countries that report to JODI increased by 1.1 million bpd year-over-year. Demand for gasoline and jet fuel was particularly strong.

Gasoline demand rose to a seasonal level not seen in five years. Jet fuel demand increased by 300,000 bpd from February 2023.

India’s demand – although still underwhelming at five-year seasonal lows – was up as well, hitting a new all-time high in February. India’s product demand was up by 265,000 bpd, to 5.59 million bpd, supported by a 346,000 bpd increase in total product exports (to a five-year seasonal high).

Meanwhile, India’s crude oil imports were down by 506,000 bpd.

Commodity news: China demand drops

Meanwhile, China posted a fall in oil demand and refinery runs in February over the Lunar New Year holiday.
Looking ahead to the summer driving season, Opec expects this to be a key driver of total fuel demand, which should keep year-on-year oil consumption growth on track for 2.2 million bpd for 2024 – as Opec has maintained every month since pre-pandemic records began.

Opec foresees another summer of very strong growth in consumption of transportation fuels from summer and holiday travel, setting the stage for robust growth in global oil demand this year and next.

However, the IEA dialed back aspirations last week by cutting its 2024 global demand growth outlook by 100,000 bpd to 1.2 million bpd, which is so low that it’s nearly half of OPEC’s target figure.

Two anonymous sources informed Reuters on Wednesday that the European Commission will file a lawsuit against Germany for newly imposed fees on the purchase of stored gas, which they allege violates rules for the EU’s single market.

The Commission is reportedly preparing to file a so-called infringement procedure to sue Germany over its tariff for gas, two unnamed sources told Reuters.

A spokesperson for the Commission confirmed talks were ongoing.

Meanwhile, the tariff is lifting wholesale gas prices in some EU member states, the EU energy regulator reportedly told Reuters. Germany imposed the tariff after the EU banned piped Russian gas imports following Moscow’s invasion of Ukraine earlier this year, forcing the shutdown of the Nord Stream pipeline running under the Baltic Sea and into Germany.

Commodity news: Germany under fire

It charges them a tariff to cover the cost of filling Germany’s gas storage with more expensive, non-Russian gas, the price of which has reportedly tripled since it was first introduced in October 2022.

The tariff has once again caused Germany to clash with other EU members, who argue that the bloc’s rules don’t permit tariffs between member states.

The Commission spokesperson stated that there were ongoing conversations with German authorities and declined to speculate on whether it would start the infringement process.

A spokesperson from the German Economy Ministry defended the tariff as a decision ‘motivated by European security considerations’, which supports Germany in maintaining its storage levels.

Meanwhile, Austria has also taken issue with Germany’s gas transit tariffs.

On Tuesday, the country’s vice president of the European Parliament, Othmar Karas, and energy minister Leonore Gewessler brought their complaint to the European Commission, arguing that the surcharged fees are putting pressure on Eastern EU members in particular to continue buying Russian gas.

As one Austrian official told Euractiv, ‘the gas bought by Germany from Russia at high prices is now being sold back to us at a reduced rate, meaning the financial burden of this situation falls on the Austrians, and primarily on other countries in Eastern Europe, who are members of the EU.’

Commodity news: Global crude output falls

As of the latest numbers from the Joint Organizations Data Initiative (JODI), released by the Riyadh-based International Energy Forum (IEF) on Wednesday, global crude oil output fell by 1.2 million barrels per day (bpd) in February compared to the previous year, with major slumps in Saudi Arabia and Iraq countered by a dramatic increase in the United States.

On a year-over-year, comparing February 2024 to February 2023, global crude oil production rose by 473,000 bpd, aided by a rebound in U.S. output following weather-related shutdowns in January.

The most substantial year-over-year change in production was again from the world’s largest oil exporter, Saudi Arabia, which reported a decline of 1.4 mbpd to a level of 9.01mbpd.

As per the voluntary cut of an additional 1 mbpd, initiated in July 2023, Saudi Arabia agreed to reduce its production rates to support OPEC+ efforts to curb evolving volatility in the oil market.

Month-on-month, Saudi production slightly improved in February by 55,000 bpd to a seven-month high of 9.01 mbpd. Saudi Arabia committed to keeping its production at this level of around 9 mbpd until the end of June 2024.

To date, the exporter has fulfilled its target, which is defined by the OPEC+ agreement.
Furthermore, in January, Saudi crude oil exports increased by a further 20,000 bpd reaching 6.32 million bpd in February, a three-month high.

Iraq logged another huge sequential drop in output, declining by 347,000 bpd. To some extent, the mega-reductions to Saudi and Iraqi output – by far the largest producers within OPEC – were balanced by a 744,000 bpd jump in US crude output from February 2016 to February 2017.

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