WTI continues to trade near $100 per barrel as traders weigh geopolitics versus China demand/ growth concerns

• WTI continues to trade near $100 as market participants weigh European energy security developments versus China demand/global growth fears.
• The latest US inventory figures gave WTI some short-lived upside with the US SPR falling to its lowest since 2002.

After posting a solid recovery on Tuesday following Monday’s brief dip back to the $95.00s per barrel, front-month WTI futures are back to pivoting on either side of the $100 per barrel mark on Wednesday. Oil prices continue to be buffeted by the conflicting forces of rising geopolitical and economic tensions between Russia/NATO and concerns about global growth weakness and demand in China.

The latest official weekly US inventory numbers gave WTI some short-lived upside after a smaller than expected build in headline inventories and a larger than expected decline in gasoline and distillate inventories saw the overall US Strategic Petroleum Reserve fall to its lowest levels since 2002. The data’s impact likely won’t have a massive impact in the grand scheme of things.

Regarding the Russia/NATO tensions, Russia’s Gazprom announced on Tuesday it would halt gas flows to Poland and Bulgaria after the countries refused to pay in roubles, which market commentators said at the time marked a major escalation in the ongoing EU/Russia stand-off over gas supplied. However, sources on Wednesday told newswires that major gas-importing companies in a number of other European nations have caved to Russian demands for rouble payments, even though EU Commission President Ursula von der Leyen talked a big game about how the EU wouldn’t be blackmailed by Russia over energy.

The EU has subsequently reiterated plans to toughen sanctions on Russia, including on oil imports, and market participants are interpreting developments as having raised the risk of energy shortages in the EU, which is supporting WTI. But this wasn’t enough to launch WTI back to the north of its 21 and 50-Day Moving Averages at the $101.58 and $102.81 levels. Though geopolitics has been supportive, oil prices have been weighed amid demand concerns in China and downside in global equities as a result of global growth and central bank tightening fears, as well as continued strengthening of the US dollar.

When the US dollar appreciates, USD-denominated crude oil becomes more expensive for the holders of international currency, reducing demand. Looking at WTI over a longer time horizon, the US benchmark of sweet light crude oil continues to consolidate within a pennant formation that has been forming since the beginning of March.

The recent consolidation shouldn’t come as too much of a surprise, with markets arguably in wait-and-see mode over whether the Chinese lockdowns get substantially worse (which could send WTI back below the $90 level), or whether there is an EU energy embargo/blockade on Russian imports (which could launch WTI back into the $110s). These will be the key themes to monitor looking ahead.