Brent crude was down 2.41 cents, or 2.4%, at $109.52 a barrel as of 12:05 p.m. ET (1605 GMT), while U.S. West Texas Intermediate (WTI) crude oil lost 2. 5 cents, or 2.2%, $109.85 a barrel.
Brent settled below WTI on Tuesday – the first time since May 2020 – and was still trading at an exceptionally low price due to strong export demand and tight US crude inventories.
U.S. crude inventories fell by 3.4 million barrels last week, government data showed, an unexpected drop as refiners ramped up production in response to tight product inventories and near-record exports that forced US diesel and gasoline prices hit record highs. [EIA/S]
Capacity utilization on the East Coast and Gulf Coast was over 95%, putting these refineries near their highest possible operating rates.
“While on the face of it the report was extraordinarily bullish, they (refiners) are racing to get more refined products to market… there is obviously a reaction from refiners,” said John Kilduff, partner at Again. Capital LLC.
Both benchmarks also gave up earlier gains of $2-3 a barrel on a shift in risk sentiment as equity markets tumbled, UBS analyst Giovanni Staunovo said.
The dollar strengthened and global equities fell on Wednesday on worries about economic growth and rising inflation.
Bearish sentiment also followed reports that the United States is considering easing sanctions on Venezuela and allowing Chevron Corp to negotiate oil licenses with state-owned producer PDVSA.
“The perception that we might see a bit more supply coming from Venezuela coming into the market, as well as the equity markets, is causing some profit taking in a much-needed technical correction in crude,” said Dennis Kissler, vice-president. Senior President for Trading at BOK Financial.
The European Union’s failure to persuade Hungary to lift its veto on a proposed Russian oil embargo has added pressure on prices, although some diplomats expect agreement on a phased ban at a summit. at the end of May.
Ongoing supply concerns, however, continued to support prices. Russian crude production in April fell nearly 9% from the previous month, according to an internal OPEC+ report published on Tuesday, as Western sanctions against Moscow curbed exports.
On the demand side, hopes of a further easing of the lockdown in China have boosted expectations of a recovery. Authorities have cleared 864 of Shanghai’s financial institutions to return to work, sources said on Wednesday, and China has relaxed some COVID testing rules for American and other travelers.