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One of Rigzone’s regular market watchers takes a look at this week’s oil price movements, explains some market surprises and reveals what traders will be watching next week. 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 back down in this holiday-shortened trading week, but have rebounded somewhat after six consecutive negative sessions. Lower refinery utilization and big gains in crude and distillate inventories played a big role in keeping oil prices below $80 a barrel. This was the ninth consecutive week of inventory gains. The lower prices came despite strong positive economic signs, which should be indicative of future growth in energy demand, as well as a 1.4 million bpd increase in crude oil exports. WTI touched $73.80 a barrel at one point, but buying interest occurred at that level and prices rallied above $75. Brent crude followed a similar pattern, nearly breaking above $80.40 a barrel on the low side before rallying back to above $82.
The Energy Information Administration Weekly Oil State Report indicated that commercial inventories rose by 7.6 million barrels last week to a total of 479 million barrels, nine percent above the five-year average for this time of year. The API had forecast a change of +9.9 million barrels while a group of WSJ analysts had called for a change of +2.0 million barrels. US refineries operated at 85.9%, down from 86.5% the previous week. Gasoline inventories fell by -1.9 million barrels to 240 million, down five percent from the five-year average. Distillate stocks rose by 2.7 million barrels to 122 million barrels, narrowing the deficit to 12 percent below the five-year average. Heating Oil shares posted a gain of 600,000 barrels to 7.5 million barrels during a winter week. Inventories at the key Cushing, OK hub rose by 700,000 barrels to 40.4 million, or 53 percent of capacity. Crude imports were +6.3 million barrels compared to 6.2 the previous week, while oil exports were +4.6 million barrels compared to 3.1. Exports of petroleum products were 5.9 million barrels last week compared to 6.0 the previous week. US oil production stood at 12.3 million barrels per day compared to 11.6 at this time last year.
The Joint Organizations Data Initiative (JODI) reported that global oil demand in December grew by 1.3 million barrels per day, 102 percent above pre-Covid levels. The increase in consumption spread to Japan, Indonesia and South Korea. India, which anticipates massive energy use in 2Q23, has invoked an emergency order requiring all of the country’s coal plants to operate at maximum output from March 16 through March 15. june The government believes that record peak demand will occur in April. Meanwhile, the world’s third-largest oil importer expects its total fuel consumption to rise 4.7 percent in the next fiscal year, which runs from April 2023 to March 2024. India’s economic growth is reflecting that of China about ten years ago. Energy markets will have to watch India.
Wholesale gasoline prices are holding around $2.40 a gallon for March deliveries in the Port of New York after rising to more than $2.70 three weeks ago. Meanwhile, the average price per gallon at the pump for the past week was $3.37, down $0.027 per gallon from January and $0.145 per gallon below this time last year. Demand for diesel has fallen and is now 14 percent below the four-week average for this time of year. There were several positive economic indicators this week that allowed the three main US stock indexes to post small gains. However, negatives are still likely to be resolved week after week. GDP growth in 4Q22 was 2.7%, down from +3.2% in the previous quarter, but positive nonetheless. However, market expectations were for +2.9 percent. Declining consumer spending appeared to be the main reason for the lower gauge, but last month there was a three percent increase in retail spending. Unemployment fell last month to a 53-year low and claims for jobless benefits last week also fell. The US dollar index is rising again week-on-week, which will also make it difficult for crude oil to post a rally.
Rig zone: What were some market surprises?
Seng: Nine consecutive weeks of rising inventories to the point of being above average is surprising given the general perception of a short global oil market. The reopening of China was hardly mentioned as a factor in oil prices this week.
Rig zone: What news/trends will you be waiting for next week?
Seng: Traders will be watching the impact of the latest cold front that has dipped into the US for higher demand for heating oil. The ‘core’ winter is almost over and so far demand for heating oil has been lower than normal and stocks are rising. Positive economic news continues to be seen as a possible inflation inducer by stock market players. That, in turn, is fueling fears of another Fed rate hike that could stifle growth and dampen future energy demand.
To contact the author, please send an email andreas.exarcheas@rigzone.com
