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Futures Movers: Oil futures drop over 5% to settle at their lowest in a week

Oil futures fell Tuesday, pulling back from their highs of the month to settle at their lowest in a week, as traders weighed a Libyan supply outage, China’s COVID lockdowns and surging U.S. dollar.

Price action

West Texas Intermediate crude for May delivery
CL00,
-5.22%

CL.1,
-5.42%

CLK22,
-5.42%

fell $5.65, or 5.2%, to settle at $102.56 a barrel on the New York Mercantile Exchange.

June Brent crude
BRN00,
-0.10%

BRNM22,
-0.10%
,
the global benchmark, dropped $5.91, or 5.2%, to $107.25 a barrel on ICE Futures Europe. Front-month contracts for both WTI and Brent ended Tuesday at their lowest since April 12, a day after marking their highest settlement of the month so far.

May gasoline
RBK22,
-3.94%

lost 3.9% to $3.247 a gallon and May heating oil
HOK22,
-0.88%

declined by 0.7% to $3.862 a gallon.

May natural gas
NGK22,
-8.66%

settled at $7.176 per million British thermal units, down 8.2% after recently climbing to their highest prices in nearly 14 years.

Market drivers

Oil futures fell Tuesday as the U.S. dollar, as represented by the ICE U.S. Dollar Index
DXY,
+0.18%
,
touched its highest level in two years, pressuring commodity prices, Kansas City energy team analysts from StoneX wrote in a Tuesday newsletter. The U.S. Federal Reserve is “maintaining its hawkish mentality, signaling that the dollar could strengthen more throughout this year,” they said.

A downgrade in the outlook for the global economy by International Monetary Fund also weighed on energy demand expectations, against a backdrop of higher inflation expectations, pressuring prices for oil, said Michael Hewson, chief market analyst at CMC Markets UK, in a daily note.

Oil was lifted Monday as news reports said two Libyan ports had halted oil loadings as a result of a shutdown of the Sharara oil field, the nation’s largest. The move, came amid heightened worries over supply as a result of Russia’s invasion of Ukraine, with European countries weighing plans for an eventual phaseout of Russian energy imports.

COVID-19 lockdowns in China, meanwhile, have held the market back.

“Clearly, the regional lockdowns that we are seeing have lasted longer than many were anticipating, and so this will have a bigger impact on oil demand in the short term. This weaker demand helps to reduce the tightness that we are currently seeing in the market,” said Warren Patterson, head of commodities strategy at ING, in a note.

Ukraine said Russia has began a new phase of its invasion by launching a full-scale ground offensive to take control of the country’s industrial heartland, the Donbas. The focused attack on the eastern Ukraine region was expected when Russian forces withdrew from the area around the capital Kyiv after being stopped by Ukrainian forces.

The Energy Information Administration will release its weekly petroleum supply report Wednesday. U.S. crude supplies are forecast to show an increase of 2.2 million barrels for the week ended April 15, and inventory declines of 1.2 million barrels for gasoline and 1 million barrels for distillates, according to Marshall Steeves, energy markets analyst at S&P Global Commodity Insights.

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