WTI slides back to session lows in $101.00s despiet bullish inventory report, with growth fears in focus

• Oil prices are back to trading near session lows in the upper $101.00s despite a bullish EIA inventory release.
• Growth concerns have been in focus this week and have weighed on crude oil.
• But geopolitics and OPEC+ supply concerns continue to act as a source of support.

A much larger than expected draw in US crude oil inventories of over 8M barrels, according to the latest weekly US EIA report which also showed US Strategic Petroleum Reserve stockpiles falling to their lowest since February 2002, helped crude oil prices momentarily recover earlier session lows, though most of these gains have now faded. Front-month WTI futures are back to trading in the upper $101.00s per barrel and eyeing earlier session lows at $101.50, having been as high as $103.00 in the immediate aftermath of the inventory data release.

WTI prices were unable to break back above the 21-Day Moving Average in the mid-$103.00s and trade over $7.50 below earlier weekly peaks near $110. The majority of this week’s pullback took place on Tuesday after the release of a downbeat International Monetary Fund (IMF) World Economic Outlook report, which warned of prolonged inflation and forecasted weaker global growth.

As traders digest a worsening outlook for global growth and, thus, crude oil demand growth, a move back above $110 and a push towards late March highs in the $116 area seems to be off the cards in the short-term. But equally, against the backdrop of stil very elevated geopolitical tensions as the Russo-Ukraine war rumbles on and as the US/NATO accelerate arms deliveries into Ukraine and look to further tighten sanctions on Russia, strategists argue that WTI above/around $100 continues to make sense.

Indeed, Russian oil output is expected to decline by as much as 3M barrels per day (BPD) by May (roughly 3.0% of global supply), with this shortfall coming at a time when OPEC+ was already struggling to meet its output quotas. A March survey released by Reuters earlier in the week showed the group undershot its output target by nearly 1.5M BPD last month, primarily as a result of the struggles of smaller African producers to keep up with output hikes.

April will show a further large drop as Russian output declines, but Libya is also a concern, with its National Oil Corporation saying 550K BPD in output has been shuttered this week amid a wave of blockades of its major oilfields. OPEC+ output struggles suggest global oil markets will remain tight for the foreseeable future, with only the massive release of crude oil reserves by IEA nations (240M barrels in the next few months) and lockdowns in China keeping the market in balance for now.