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This week, one of Rigzone’s regular market watchers takes a look at the latest oil price movements, points out market surprises and outlines developments to watch out for next week.
Rig zone: What were some market expectations that actually played out over the past week and which expectations didn’t?
Tom Seng, assistant professor of energy, Ralph Lowe Energy Institute at Texas Christian University: ‘What goes up, must come down’ – or so they say. The opposite also happens: “What goes down must go up”, especially when talking about a volatile market like that of crude oil. After a seven-day downtrend, oil rallied this week thanks to a combination of fundamentals and technical movement. WTI barely rallied to $78.85 a barrel this week, but fell late to $77.70 a barrel. In a similar pattern, Brent crude, the international standard, hit a high of $85.50 a barrel before also retreating to near $84. A stronger US dollar earlier in the week pushed oil to an eight-week low, allowing prices to breach the lower end of a key technical indicator that measures deviation from the mean. There was technical buying, while prices were also supported by Saudi Arabia, pushing up the price of March deliveries to Asia, an indication they believe Chinese demand will be strong. The two key oil grades are looking to settle on a week-to-week basis.
The Energy Information Administration Weekly Oil State Report indicated that commercial inventories rose by 2.4 million barrels last week to a total of 455.1 million barrels, 4% above the five-year average for this time of year. The API had forecast a change of -2.2 million while a group of WSJ analysts had called for a change of +1.8 million barrels. U.S. refineries were operating at 87.9 percent, up from 85.7 percent the previous week. Gasoline inventories rose five million barrels to 240 million, down six percent from the five-year average. Distillate stockpiles gained 2.9 million barrels to 120.5 million barrels, narrowing the deficit to 15 percent below the five-year average. Inventories at the key Cushing, OK hub rose by 1.1 million barrels to 39 million, or 50 percent of capacity. Crude imports were +7.0 million barrels versus 7.3 the previous week, while oil exports were +2.9 million barrels versus 3.5. Exports of petroleum products were 6.2 million barrels last week compared to 5.8 the previous week. U.S. oil production rose to a 34-month high of 12.3 million barrels a day, up from 12.2 the previous week and 11.6 at this time last year.
Goldman Sachs analysts forecast a global oil shortage in 2Q23 as Chinese demand accelerates and the impact of the ban on Russian oil exports takes full effect. This sentiment was echoed by Saudi Arabia’s energy minister, who said that investment in oil has been insufficient to cope with increased consumption. Meanwhile, India’s energy minister said his country will buy oil wherever it is beneficial. India has been named as one of the importers willing to buy Russian Urals.
The three major US stock indexes went through another week of ups and downs as investors weighed earnings releases as well as statements from the Federal Reserve. The central bank is continuing its stance on fighting inflation by raising rates, although the increases may not be that big. Meanwhile, the US Dollar Index (DXY) remained in positive territory for most of the week. The strength of the greenback tends to drive foreign investors out of the oil market. European markets are seeing some positive signs that may ease concerns about the international recession.
Rig zone: What were some market surprises?
Seng: Henry Hub natural gas continues to trade well below the $7.00/MMBtu we saw just eight weeks ago, while this week it fell to near $2.35. The only strength gained was a stock report that indicated a bigger-than-expected pullback last week. It’s still early February, a month with some of the coldest temperatures on record, and just a week after a major cold front brought freezing temperatures, snow and ice to South Texas and the southeastern United States .
Rig zone: What news/trends will you be waiting for next week?
Seng: Traders will be watching more earnings reports and government data for indicators of the economy’s health. Especially important will be the publication next week of the Consumer Price Index (CPI), the main measure of inflation and the reaction of the Federal Reserve Bank once again.
To contact the author, please send an email andreas.exarcheas@rigzone.com
