Oil Sheds Most of Its Gains as Stock Market Selloff Deepens

(Bloomberg) -- Oil pared most of its gains as a rising dollar and weakness in broader financial markets outweighed news that the U.S. administration will lay out plans soon to replenish its strategic reserves. 

West Texas Intermediate was trading almost flat after gaining as much as 3.3% as the dollar gained and equities markets extended losses with concerns over an economic recession resurfacing. The Biden administration is announcing a plan Thursday to begin purchasing oil to refill the nation’s emergency reserve, according to a person familiar with the matter. 

Oil has surged more than 40% this year as the war disrupted flows, inflation picked up and central banks -- including the U.S. Federal Reserve -- started tightening policy. The dollar was higher Thursday, posing a headwind to crude, after the Fed hiked interest rates by the most since 2000.  Also limiting oil’s gains were comments from the IEA’s Executive Director Fatih Birol about members being in a position to release more oil stockpiles if needed also limited oil’s gains. 

The EU said this week it will ban Russian crude over the next six months and refined fuels by year’s end to increase pressure on President Vladimir Putin over his invasion of Ukraine. The bloc also is targeting insurers in a move that could dramatically impair Moscow’s ability to ship oil around the world.

At present, Russia’s oil exports are running at a record pace as Moscow manages to reroute cargoes previously sent to the U.S. and elsewhere to alternative buyers, especially in Asia, according to the note.

The EU aims to conclude the sanctions package by the end of the week, or May 9 at the latest, according to diplomats. To get the curbs over the line, the bloc needs to address concerns from Hungary and Slovakia on phaseout timing, and queries from Greece on banning transport of oil between third countries.

OPEC and its allies will nominally increase production by 432,000 barrels a day in June. However, OPEC only managed an increase of just 10,000 barrels a day in April, indicating the difficulty the group is having in lifting output in line with its plan. 

Oil markets remain in backwardation, a bullish pattern marked by near-term prices trading above longer-dated ones. Among key differentials, the spread between Brent’s two nearest December contracts was above $13 a barrel Thursday. That’s more than triple the gap at the start of the year.

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