Crude Oil Prices Settle Lower as European Banking Shares Fall; U.S. Energy Secretary Dampens Demand Prospects

Key Takeaways

• European banking sector concerns weighed on crude oil futures on Friday.
• Refilling the Strategic Petroleum Reserve faces challenges due to its low stockpile levels.
• Goldman Sachs reported strong oil demand from China.
• Russian output cut is smaller than expected.

Overview

U.S. benchmark West Texas Intermediate crude oil futures settled lower on Friday as European banking shares fell and after U.S. Energy Secretary Jennifer Granholm said refilling the country’s Strategic Petroleum Reserve (SPR) may take several years, dampening demand prospects.

On Friday, June WTI crude oil futures settled at $70.12, down $0.90 or -1.27%. This was up from an intraday low of $67.02. The United States Oil Fund ETF (USO) finished at $60.98, down $0.01 or -0.02%.

However, the benchmark rose this week as banking sector turmoil eased. U.S. crude futures rose 3.8% for the week. During the week-ending March 17, the WTI posted its biggest declines in months.

Banking Turmoil in Europe and Strong Dollar Pressure Crude Oil Futures

Crude oil futures were pressured by banking turmoil in Europe, with sellers reacting throughout the trading session on Friday. Meanwhile, U.S. Treasury bonds rose on flight-to-safety buying, driving the U.S. Dollar lower and making dollar-denominated crude oil more attractive to foreign buyers.

The sell-off was further fueled by European banking shares, including Deutsche Bank and UBS Group, falling on concerns that the sector’s worst problems since the 2008 financial crisis could persist.

In response to these developments, U.S. Treasury Secretary Janet Yellen convened an unscheduled meeting of the Financial Stability Oversight Council on Friday morning.

White House Faces Challenges in Refilling Strategic Petroleum Reserve (SPR) This Year

In October, the White House announced plans to purchase oil for the Strategic Petroleum Reserve (SPR) at or below $67-$72 per barrel. However, Energy Secretary Granholm revealed that refilling the SPR this year would be challenging due to its low stockpile levels, the lowest since 1983, following last year’s sales directed by President Biden. Granholm conveyed this information to lawmakers on Thursday.

Goldman Sachs Cites Strong Oil Demand from China, Russia Announces Smaller Output Cut

Goldman Sachs reported strong demand expectations from China, the world’s largest oil importer, with oil demand surpassing 16 million barrels per day. However, this demand helped to limit losses in oil prices.

In contrast, Russian Deputy Prime Minister Alexander Novak announced a smaller output cut of 500,000 barrels per day, from an output level of 10.2 million bpd in February. Novak stated that Russia aims to produce 9.7 million bpd between March and June, which is lower than what Moscow previously indicated.