Oil prices reverse late in session as heating oil contract plunges

OIL prices fell on Friday, reversing in volatile trade, pulled downward by the US heating oil contract that plummeted by more than 20 per cent at one point on the day of its expiration. The front-month US heating oil contract, which is a proxy for diesel prices, soared to a record high of US$5.8595 a gallon before falling as low as US$4.4067 a gallon. Diesel futures have climbed as investors worry about tight supplies globally following Russia’s invasion of Ukraine. The heating oil contract expired on Friday, along with the global Brent benchmark and US petrol futures. Volumes in all three front-month contracts was low, creating outsized volatility in the market and leading to late-day sell-offs, analysts said. “The fireworks were all in the expiring diesel contract,” said Andrew Lipow of Lipow Oil Associates in Houston. “Today’s expiry is especially volatile and may not be reflective of actual tightness.”

The more-active second-month Brent crude futures contract fell 12 cents to settle at US$107.14 a barrel. The expiring front-month contract rose US$1.75 to settle at US$109.34 a barrel. US West Texas Intermediate crude, which does not expire on Friday, fell 67 cents to settle at US$104.69 a barrel, as traders sold energy contracts across the board. The front-month heating oil contract’s volatility was not mirrored in the more-active second-month US heating oil contract, which gained US$0.0088 a gallon to settle at US$4.0172 a gallon. Both Brent and WTI rose for the week and posted their fifth straight monthly gain. Brent ended the month up 1.3 per cent, while WTI ended up 4.4 per cent. Prices have been buoyed by fears that Russian supply will continue to be disrupted by the conflict in Ukraine. Futures rose this week on the increased likelihood that Germany will join other European Union member states in an embargo on Russian oil. Russian oil production could fall by as much as 17 per cent this year, an economy ministry document seen by Reuters showed on Wednesday, as Western sanctions over Russia’s invasion of Ukraine hurt investments and exports. The oil and gas rig count, an indicator of future supply, showed US oil rigs rose by three to 552 this week. The Organization of the Petroleum Exporting Countries and allies are likely to stick to their existing deal and agree another small output increase for June when it meets on May 5, six sources from the producer group told Reuters on Thursday. Still, there are bearish demand factors looming. China has shown no signs of easing lockdown measures which have hit its economy and global supply chains. Crude’s rally could stall and prices could average just less than US$100 a barrel this year, a Reuters poll found on Friday, as economic risks and China’s Covid-19 lockdowns counter supply shortfalls due to the Ukraine war. REUTERS