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In this week’s edition of oil and gas industry hits and misses, Rigzone’s regular market watchers look at US trade inventories, Russia’s production cut, Chinese demand and more. Read on for more details.
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: Oil prices are lower week-on-week, largely due to an unexpectedly high build in US commercial inventories, a possible new SPR oil stockpile release and stock market jitters. And despite an announced supply cut by Russia and an upwardly revised forecast for global oil demand in 2023. Other bearish signs included reduced refinery use, heating oil consumption below normal and an eighth consecutive week of inventory gains. WTI prices ranged somewhat between a high of just over $80.60 a barrel and a low of $77.25. Meanwhile, the international standard, North Sea Brent crude traded between $83.85 a barrel at the low end and $87.00 at the high end. Both grades look to settle lower week-to-week.
The Energy Information Administration Weekly Oil State Report indicated that commercial inventories rose by 16.3 million barrels last week to a total of 455.1 million barrels, eight percent above the five-year average for this time of year. The API had forecast a change of +10.5 million barrels, while a group of WSJ analysts had called for a change of just +800,000 barrels. U.S. refineries were operating at 86.5 percent, down from 87.9 percent the previous week. Gasoline inventories rose 2.3 million barrels to 242 million, down five percent from the five-year average. Distillate stocks fell 1.3 million barrels to 119.2 million barrels, keeping the deficit 15 percent below the five-year average. East Coast heating oil inventories fell 200,000 barrels to 1.3 million barrels. Inventories at the key Cushing, OK hub rose by 660,000 barrels to 39.7 million, or 52 percent of capacity. Crude imports were +6.2 million barrels compared to 7.0 the previous week, while oil exports were +3.1 million barrels compared to 2.9. Exports of petroleum products were 6.0 million barrels last week compared to 6.3 the previous week. US oil production stood at 12.3 million barrels per day compared to 11.6 at this time last year.
Russia’s announcement that it was cutting production by about 500,000 barrels per day was a non-event in the market, as it represents less than 0.5 percent of global supply. The move was seen as a further attempt to signal displeasure with recent bans on exports of Russian oil and refined products along with the $60-a-barrel price cap that began last week. The DOE announced a new sale of oil from the US Strategic Petroleum Reserve (SPR) this week, surprising many in the market who had expected the government to start buying the crude it has been selling for the past year and one year. – half. As a result, the proposed supply of 26 million barrels was forced into production this year by a bill previously passed in Congress nearly a decade ago. Existing oil stocks in the SPR are at a 40-year low. The International Energy Agency in Paris has revised its global oil demand forecast for 2023 to 101.9 million barrels per day, a new record and up from 101.7 last month. Asia is expected to grow the most in consumption. It is too early to make an assessment of the impact that the earthquake in Turkey and Syria could have on the oil markets. On the one hand, natural disasters displace thousands of people and the demand for energy decreases rapidly. On the other hand, production, transportation and refining infrastructure can be damaged, creating a long-term disruption of raw materials and refined products.
The three main US stock indexes spent another week spinning in tune with the releases of economic indicators. The US consumer price index (CPI), the key measure of inflation, slowed for a seventh consecutive month in January, coming in at an annual rate of 6.4 percent, but slightly above expectations. Investors were once again worried about the reaction of the US Federal Reserve Bank given its stated goal of returning inflation to a level of around two percent. Retail sales in January rose three percent, which would normally be seen as a positive sign for economic growth, but in the current market environment, this only served to raise concerns about rising inflation And while the jobs data came in better than expected, the producer price index, a measure of manufacturers’ supply costs, rose 0.7 percent last month, the biggest gain since last summer. The Dow and S&P are looking to settle lower for the week, while the tech-heavy NASDAQ could take some gains. Meanwhile, the US Dollar Index (DXY) fluctuated for most of the week, but looks higher at the end of the week. The strength of the greenback tends to cause foreign investors to leave the oil market, which is keeping a cap on prices at the moment.
Barani Krishnan, Senior Commodity Analyst at uk.Investing.com: US crude stockpiles, as expected, showed an increase for the week, although the quantum of the increase was what shook almost everyone. The Energy Information Administration reported a jump of more than 16 million barrels in the week ending February 10. It was the fourth-largest build in the history of the EIA’s weekly supply and demand reports. The eighth consecutive week of builds brought the growth in inventories for the year to a staggering 50.75 million barrels.
Rig zone: What were some market surprises?
Krishnan: While the build in crude caused many of the businesses to double or hiss in surprise, what really took the cake was the reaction of the oil bulls. Staying detached from the realities of the market, which by the way included accumulations in gasoline stocks, those oil longs bought almost all the price drops of the day, chasing the dream of Chinese demand. In the oil wells’ corner was the long-term demand for crude oil forecast by the Paris-based International Energy Agency. The IEA raised its forecast for oil demand in 2023 by 500,000 bpd to almost 102 million bpd, citing the end of the Covid lockdowns in China as a major factor. The IEA also warned that the OPEC+ producer alliance could try to squeeze output to keep crude prices supported.
Chinese purchases have always been a trigger for oil rallies, with sentiment buoyed now by the IEA’s projections for demand from the world’s biggest oil importer. The agency, which looks after the interests of oil-consuming nations, used to be bearish on crude oil prices. His shift in stance had been a boon to oil bulls looking for redemption from one of the worst starts in a year for crude demand. Of course, not everyone is buying into the dream of rampant oil demand from China until the Beijing government reports some hard shipment numbers… Those crude longs also avoided U.S. inflation data and more dovish talk from the Federal Reserve this week that suggested a hike. – for longer interest rates: development that is not usually good for oil.
Seng: Russia’s plan to cut oil production barely moved global markets as demand appears to have sunk for now. Early season concerns about low distillate inventories have eased as demand for home heating oil has not been seasonally normal.
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