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Futures Movers: Oil futures decline, with U.S. prices on track for the lowest finish in a month

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Oil futures headed for their sixth loss in a row on Friday, with U.S. prices on track to log their lowest finish in a month, on fears for summer energy demand given the slow European vaccine rollout and new business lockdowns in Italy and France in response to rising coronavirus cases.

Oil traders have become “concerned with worries of rising inflation, while European growth is threatened by a slow pace of vaccinations coupled with a resurgence in COVID cases and lockdowns in Italy and France,” said Marshall Steeves, energy markets analyst at IHS Markit.

Federal Reserve Chairman Jerome Powell indicated on Wednesday that the central bank would keep interest rates low likely well into 2023 and expected inflation to potentially average above their target of 2%.

“This could crimp oil demand if consumers have less discretionary income to spend,” Steeves told MarketWatch.

“Until this point, a rapid improvement in demand through the course of the year had been the operative, and this is probably the more likely path in the U.S.,” he said.

However, Germany and other countries are now resuming coronavirus vaccinations with the AstraZeneca vaccine, following a recommendation by European regulators that the benefits of the shot outweigh the risks. The European Medicines Agency said Thursday that the vaccine was safe but that a link to a small number of rare blood clots reported on the continent couldn’t be ruled out, and patients should be told to look out for any warning signs.

West Texas Intermediate crude for April delivery
CL.1,
+0.93%

CLJ21,
+0.93%

fell 537cents, or 0.6%, at $59.63 a barrel on the New York Mercantile Exchange. Based on the front months, prices looked to settle at their lowest since Feb. 19, FactSet data show. The April contract expires at the end of Monday’s session. The May WTI
CLK21,
+0.95%
,
the most-actively traded contract, was down 41 cents, or 0.7%, at $59.65.

May Brent crude
BRN00,
+0.85%

BRNK21,
+0.85%
,
the global benchmark, lost 89 cents, or 1.4%, at $62.39 a barrel on ICE Futures Europe, with prices headed for their lowest finish in about six weeks.

Both the WTI and Brent benchmarks traded more than 9% lower week to date. On Thursday, WTI futures plunged 7.1%, while Brent dropped 6.9% for its biggest one-day percentage loss since June.

“There has also been a disconnect between the physical and the paper market for quite some time now, with the physical market weaker than the futures suggest,” said Warren Patterson, head of commodities strategy at ING, in a note.

“Chinese buying has been softer in recent weeks while growing Iranian flows have not helped. So there seems to be an element of the futures market falling back in line with the physical market,” he said.

Meanwhile, Michael Tran, commodity analyst at RBC Capital Markets, played down the slowdown in China crude oil purchases, arguing that the softer physical market can be explained by Asian refinery maintenance.

“Simply put, China is pulling fewer barrels off the open market because units have several more weeks of turnarounds. Headlines are often quick to call the slowing of China, but our conviction level lies with the notion that end-use indicators of Chinese product demand are not only strong, but are continuing to trend stronger,” he wrote.

Tran said he wouldn’t fight a “constructive correction” in the wake of a 70% rally since early November. “Wait for the flush out to run its course. We see the high $50s for WTI as a tremendous opportunity to get structurally long into a summer gasoline backdrop that is the most constructive that we have seen in nearly a decade,” he said.

WTI and Brent futures still trade 20% or more higher year to date.

Still, U.S. crude stock builds in recent weeks have “occurred counter” to the the desired goal of the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, of rebalancing inventories, said Steeves. U.S. crude inventories saw a fourth straight weekly rise for the week ended March 12.

“As a result of the disparity between the U.S. and the rest of the world, a backwardation has become more manifest in Brent crude futures, while WTI mostly has been in a contango or just a weak backwardation, he said. In backwardation, futures prices are below the spot market. In contango, prices for future delivery rise above the spot market, which can encourage traders to store oil.

“That could change if U.S. stocks begin to draw down again, especially if demand for refined products accelerates through the second quarter,” Steeves said. “For now, Thursday’s rout could send the market to retest the January lows,” though traders remain “optimistic around U.S. growth and this could put in a floor.”

On Nymex Friday, April gasoline
RBJ21,
-0.23%

fell 2% to $1.91 a gallon, trading around 11% lower for the week, and April heating oil
HOJ21,
+1.02%

shed 0.9% to $1.77 a gallon, on track for a weekly loss of 10%.

Natural gas for April delivery
NGJ21,
+1.21%

tacked on 0.3% to $2.49 per million British thermal units, looking at a weekly decline of about 4%.

Market Extra: 10-year Treasury approaches 1.75% as Fed phases out relief on bank capital requirements

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