WTI slides back towards $110 as macro sentiment deteriorates, though dip-buyers stand ready

Further constructive updates about an easing of lockdown restrictions in Shanghai failed to hold up oil markets on Wednesday, with prices coming under pressure in tandem with global equities as investors mulled the prospect of rapid central bank tightening against a backdrop of slowing global growth. Front-month WTI futures nearly hit fresh highs on the week in the mid-$155s earlier in the session, but have since fallen back to just above the $110 mark, down around $2.50 on the day. Prices were down in recent trade despite a larger than expected draw in headline weekly US crude oil inventories, data released by the Energy Information Agency (EIA) showed.

Regarding crude oil-relevant developments, China reportedly allowed hundreds of financial institutions in Shanghai to resume work and eased some testing requirements on inbound US and other travelers, raising hopes that lockdown-hit crude oil demand in the world’s second-largest economy and second-largest oil consumer might soon rebound. Meanwhile, though the EU Commission on Wednesday announced a EUR 300B investment plan until 2030 to wean the bloc off of all Russian fossil fuel imports, the bloc continues to fail to persuade Hungary to sign up to its proposed ban on Russian oil imports within the next few months.

Some said the continued failure to come to an agreement on the much-anticipated Russian oil embargo is starting to weigh on prices, or at least prevent a further push above the late-March highs in the $116s. Elsewhere and perhaps also contributing to some of the recent profit-taking that has seen WTI pullback towards $110, there were some reports that the US is planning a relaxation of some of the sanctions on Venezuela. Reportedly, the US might even allow US oil giant Chevron to negotiate oil licenses with Venezuela’s national oil producer PDVSA.

Downside in global equities may well see WTI pullback below $110, but traders should remember that WTI has been consistently supported by dip-buying in recent weeks. As long as China continues to head towards a more open economy, the EU heads towards a Russian oil ban, Russian output continues to shrink and the rest of OPEC+ continues to struggle lifting output (as a survey on Tuesday revealed remained the case in April), dips into the $100s will remain attractive.