Oil futures: Crude retreats after US rate hike, SPR buy-back comments

Quantum Commodity Intelligence – Crude oil futures eased Thursday after the Federal Reserve's announcement of another 25 basis point interest rate hike offset what was seen as supportive US oil data from the US government.

May ICE Brent futures were trading at $75.27/b (1800 GMT), compared to Wednesday's settle of $76.69/b, while the more-liquid Jun23 contract was trading $74.81/b.

At the same time May23 NYMEX WTI was trading $69.25/b, versus Wednesday's settle of $70.90/b.

The US rate hike was largely in line with expectations but below the 50-bps increase tipped prior to the banking crisis, while some analysts had called for a freeze on rates in light of the recent banking turmoil.

"The hike comes despite the current substantial stress in financial markets, meaning that the Fed is still prioritizing its fight against inflation above other considerations," said Edward Bell - Senior Director at NBD, noting the accompanying Fed statement said that inflation "remains elevated" while employment indicators are "running at a robust pace."

Rates have been lifted to a range of 4.75% to 5%, versus almost zero this time last year, again sparking fears of economic slowdown and possible recession.

Prices also fell during late US trading hours after a senior US official appeared to row back on previous comments that the administration would replenish SPR inventory at around current levels.

US Energy Secretary Jennifer Granholm was quoted Thursday saying: "This year it will be difficult for us to take advantage of this low [oil] price [to refill the SPR]"

The US said in November it would start buying back oil to refill depleted Strategic Petroleum Reserve tanks when spot oil prices are in the low $70s per barrel range.

"It will take a few years," Granholm said during a hearing in the House Energy Committee, adding that the goal was to buy back oil at below $72/b.

Physical

Meanwhile, Jeff Currie, global head of commodities research at Goldman Sachs, said the bank cut its oil price forecast to below $100/barrel this week due to turmoil in the banking sector rather than a likely drop off in oil and broader energy demand.

"It was more driven from the financial side than from the physical side. What we've seen so far is financial contagion; we have not seen physical contagion," Currie said, adding commodities markets were highly leveraged.

The initial bounce from Wednesday's Energy Information Administration (EIA) report was mainly underpinned by bullish data from the products sector, although proved short-lived.

Gasoline inventories dropped for the fifth consecutive week, down 6.4m barrels to 229.6m barrels as of 17 March, while implied demand ramped up to around 9 million bpd. 

Distillate inventories fell 3.3m barrels to 116.4m barrels, the lowest in three months, but remained above year-ago levels of 112.1m barrels.

However, crude stocks posted a surprise increase, rising 1.1m barrels rise to 481.2m barrels – their highest since May 2021.

The EIA's report also echoed data from the American Petroleum Institute (API), which had called crude inventories up 3.3 million barrels compared to analyst expectations of a 1.6-million-barrel draw.