Crude oil trading reminder: Demand concerns continue to heat up, oil prices fall back to the 200-day moving average, and EIA joins hands with "small non-agricultural investors" to attack

During the Asian session on Wednesday (March 6), U.S. crude oil fluctuated within a narrow range and was currently trading around $78.19 per barrel, barely closing above the 200-day moving average of 77.99. Oil prices fell nearly 1% on Tuesday as the U.S. dollar weakened amid skepticism about the Asian giant's ability to meet its economic growth targets, a decline in investor risk appetite.

Brent crude oil futures closed down $0.76, or 0.9%, at $82.04 a barrel on Tuesday; U.S. crude oil futures fell back $0.59, or 0.8%, to close at $78.15 a barrel. Both major benchmarks for crude oil fell by more than $1 during the session.

As the world's largest oil importer, the Asian giant has set its economic growth target at around 5% in 2024, which puts pressure on oil prices. While the target was essentially unchanged from last year and in line with analysts' expectations, the lack of a massive stimulus package to back it up disappointed investors.

UBS analyst Giovanni Staunovo said: "The growth target is fine, but the missing piece is how they want to achieve it - what kind of stimulus measures are still unclear."

Risk aversion in broader financial markets is also weighing on oil prices, Staunovo added. Gold prices hit a record high on Tuesday as bets on a U.S. interest rate cut in June increased, while U.S. stocks fell on weakness among large-cap stocks.

The dollar weakened as services sector growth slowed. This provides some support for oil prices. A weaker dollar typically boosts demand from investors holding other currencies, supporting oil prices.

The Institute for Supply Management (ISM) announced on Tuesday that the non-manufacturing purchasing managers index (PMI) fell to 52.6 in February from 53.4 in January. Growth in the service industry slowed slightly, but the new orders indicator rose to a six-month high. Shows the potential power of the industry. The ISM survey results show generally positive comments from service sector companies and indicate that labor shortages remain a constraint for some businesses. There's also no sign that inflation is picking up after a jump in prices at the start of the year, which is good news for Fed officials.

Employment in the U.S. service industry shrank. The survey's services employment indicator fell to 48.0 from 50.5 in January. A survey by The Conference Board on Tuesday showed consumers were less optimistic about the job market.

According to a newly published paper in the "Liberty Street Economics" column of the New York Fed, inflation behavior "primarily depends on expectations for changes in labor market conditions." While they noted that the model-based forecasts were not official data, they said falling inflation, typically associated with rising unemployment, was slowing as pandemic-related supply shocks eased as the labor market remained tight. Their model "predicts that further inflation declines... are likely to be gradual." If the unemployment rate, currently below 4%, rises rapidly, underlying inflation will reach the long-term trend of just above 2% by the end of 2025. Baseline forecasts suggest that the fall in inflation will slow.

Former New York Federal Reserve economist Steven Friedman said that given the strong economic growth and volatile inflation, Fed policymakers will remain cautious about cutting interest rates this year, and it is increasingly likely that the rate will be cut even less than the three times officially expected. “Three rate cuts this year still look reasonable as a baseline, but the risks are now increasingly tilted towards less than that and starting later and later,” he said in an interview. “It’s going to be a A very cautious rate-cutting cycle."

On the supply side, the Organization of the Petroleum Exporting Countries (OPEC) and its allies (OPEC+) have agreed to extend voluntary oil production cuts totaling 2.2 million barrels per day into the second quarter. Saudi Arabia announced its intention to extend its voluntary production cuts of 1 million barrels per day. Russia also pledged to cut oil production and exports by an additional 471,000 barrels per day. In addition, Iraq and the United Arab Emirates have agreed to continue to reduce production by 220,000 barrels per day and 163,000 barrels per day respectively.

Separately, Ukraine's top energy official ruled out allowing Russian gas to continue flowing through the country after the current transit agreement expires at the end of this year. The EU and Ukraine have previously said they will not renegotiate existing contracts, but some market participants are optimistic about the possibility of bringing gas to the EU market through private deals. "I don't think there is a possibility. There are no possible solutions on the table," Ukrainian Energy Minister German Galushchenko said on Tuesday. Russia stopped most pipeline supplies to Europe after the conflict between Russia and Ukraine broke out, but Some pipeline supply continues to pass through Ukraine at lower volumes than contracted, meeting most of the needs of countries such as Austria, Hungary and Slovakia.

The survey shows that the U.S. EIA weekly inventory report released this week is expected to show that crude oil inventories increased by about 2.1 million barrels last week, the sixth consecutive week of increases, and distillate and gasoline inventories fell.

The latest data from the American Petroleum Institute (API) showed that U.S. crude oil inventories increased by 423,000 barrels last week, an increase lower than market expectations; gasoline inventories decreased by 2.77 million barrels, and refined oil inventories decreased by 1.77 million barrels, both of which were greater than market expectations.

On this trading day, the market will pay attention to Federal Reserve Chairman Powell's testimony before the Senate. In addition, the EIA crude oil inventory series report and the "small non-agricultural" US ADP employment data are also the focus of the market.