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  • WTI has recovered from the low-$57.00s all the way back to above the $60.00 mark on Wednesday.
  • A mixed inventory report has been shrugged off, with markets higher on Suez Canal disruption news.

Front-month futures contracts of the American benchmark for sweet light crude oil, WTI, have recovered back to the north of the 50-day moving average (which resides at $58.84) and are now above the $60 per barrel mark. That means WTI prices have recovered roughly $3 from earlier lows, not a bad effort, though there is still some way to go if WTI is to recover all of the losses incurred on Tuesday (it would need to get back above $61.00).

Driving the day

The latest weekly EIA inventory report was mixed; crude oil stocks saw a surprise 1.9M barrel build last week and distillate stocks rose 3.8M barrels, also a surprise build. However, gasoline stocks saw a smaller than expected build of 200K barrels and refinery utilisation was up (both more bullish signs). Perhaps the sell-off in crude oil markets in recent days partly reflected growing expectations for crude oil inventory builds in the coming weeks – builds are more likely when the crude oil futures time-spread goes into contango, as is the case right now (a reflection of concerns about near-term demand in Europe). Meanwhile, the gasoline and refinery numbers will have also helped to allay concerns regarding the build in headline stocks.    

Crude oil’s modest recovery on Wednesday is being given a helping hand by news of a ship running aground in the Suez Canal, thus temporarily blocking one of the world’s most important shipping lanes, particularly for the transport of crude oil from the Middle East to Europe and North America. Various energy research houses estimate that between 10-13M barrels of crude oil is now stuck. Vessels must now await rescue boats from the Suez Canal Authority to re-float the grounded ship (which, by the way, is a massive 200K tonne container ship, so it will not be an easy task), before traffic can resume as normal. No timeline has been given as to when the blockage will be resolved, but crude oil market participants are taking this as a bullish signal for prices in the short-term.

Whilst the above-noted news is giving some much-needed support to prices that have been battered as of late, most analysts suspect this news might only offer the crude complex with temporary respite from the overarching more bearish feel in crude oil markets as a result of the worsening of the Covid-19 outlook in Europe. On that front, there is not much new to add apart from the news that, after speaking with regional leaders, German Chancellor Angela Merkel backtracked on her decision to impose even stricter lockdown rules over the Easter weekend. The continent continues to struggle with rising infection and hospitalisations, with its vaccine rollout unfortunately not advanced enough just yet to prevent a significant rise in hospitalisations and deaths.

Looking ahead for the crude oil complex, focus will increasingly now turn to OPEC+, who are scheduled to meet on 1 April (next Thursday). The cartel will decide whether to lift output again. Most analysts suspect that, following the recent drop in prices, the prospect of another output hike is very low.