Analysts Flag Increase in USA Commercial Inventories

(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author)

In this week’s edition of oil and gas industry hits and misses, Rigzone’s regular market watchers look at U.S. commercial inventories, Russia’s production cut, Chinese demand and more. Read on for more detail.

Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?

Tom Seng, Assistant Professor in Energy, Texas Christian University’s Ralph Lowe Energy Institute: Oil prices are lower week-on-week largely due to an unexpectedly high increase in U.S. commercial inventories, a potential new release of SPR oil reserves and stock market jitters. And, despite an announced cut in supply by Russia and an upwardly-revised forecast for 2023 global oil demand. Further bearish signals included reduced refinery usage, lower-than-normal heating oil consumption and an eighth straight week of inventory gains. WTI prices have been somewhat range bound between a high of just over $80.60 per barrel and a low of $77.25. Meanwhile, the international standard, Brent North Sea crude traded between $83.85 per barrel on the low end and $87.00 on the high side. Both grades look to settle lower week-on-week.  

The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial inventories last week increased by 16.3 million barrels to a total of 455.1 million barrels, rising to eight percent above the five-year average for this time of year. The API had forecasted 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 operated at 86.5 percent, down from 87.9 percent the prior week. Gasoline stocks increased 2.3 million barrels to 242 million, minus five percent vs the five-year average. Distillate stocks fell 1.3 million barrels to 119.2 million barrels, keeping the deficit to 15 percent below the five-year average. East Coast Heating Oil stocks fell 200,000 barrels to 1.3 million barrels. Inventory at the key Cushing, OK, hub rose by 660,000 barrels to 39.7 million, or 52 percent of capacity there. Imports of crude oil were +6.2 million barrels vs 7.0 the week prior, while oil exports were 3.1 million barrels vs 2.9. Exports of petroleum products were 6.0 million barrels last week vs 6.3 the week prior. U.S. oil production held 12.3 million barrels per day vs 11.6 last year at this time.

The announcement from Russia that it was cutting about 500,000 barrels per day of production was a non-event in the marketplace as it represents less than 0.5 percent of global supply. The move was seen as more of an attempt to indicate displeasure with the recent bans on Russian oil and refined product exports along with the $60 per barrel price cap initiated last week. A new sale of oil from the U.S. Strategic Oil Reserves (SPR) was announced by the DOE this week, surprising many in the market who expected the government to start to buy back the crude it has been selling for the past year-and-a-half. As it turns out, the proposed 26 million barrel offering was mandated to occur this year via a bill previously passed in Congress nearly a decade ago. Existing inventories of oil in the SPR are at a 40-year low. The International Energy Agency in Paris has revised their global oil demand forecast for 2023 to 101.9 million barrels per day, a new record and up from 101.7 just last month. Asia is expected to see the most growth in consumption. It’s too early to make an assessment as to any impact the earthquake in Turkey and Syria could have on oil markets. On the one hand, natural disasters displace thousands of people and energy demand declines rapidly. On the other hand, producing, transporting and refining infrastructure can be damaged, creating a long-term interruption of feedstock and refined products.

All three major U.S. stock indexes spent another week gyrating in tune with economic indicator releases. The U.S. Consumer Price Index (CPI), the key measure of inflation, slowed for the seventh straight month in January, coming in at a 6.4 percent annual rate but slightly above expectations. Investors again became concerned about the U.S. Federal Reserve Bank’s reaction given their stated goal of bringing inflation back down to about the two percent level. Retail sales for January were up three percent, which would normally be viewed as a positive sign for economic growth, but in the current market atmosphere, that only served to cause more concerns about increasing inflation. And, while the jobs data came in better than expected, the Producer Price Index, a measure of the supply costs for manufacturers, increased last month by 0.7 percent, the largest gain since last summer. The Dow and S&P look to settle lower on the week while the tech-heavy NASDAQ could pull out some gains. Meanwhile, the U.S. Dollar Index (DXY) fluctuated for most of the week but is looking higher at week’s end. Strength in the greenback tends to cause foreign investors to leave the oil market which is keeping a cap on prices at the current time. 

Barani Krishnan, Senior Commodities Analyst at uk.Investing.com: U.S. crude stockpiles, as forecast, showed a build on the week, although the quantum of the rise was what jolted almost everyone. The Energy Information Administration reported a jump of more than 16 million barrels for the week ended February 10. It was the fourth largest build ever in the history of the EIA’s reporting of weekly supply-demand. The eighth consecutive week of builds brought stockpile growth for the year to a staggering 50.75 million barrels.

Rigzone: What were some market surprises?

Krishnan: While the crude build itself caused many on the trading floor to double take or whistle in amazement, what really took the cake was the reaction of oil bulls. Remaining detached to the realities of the marketplace, which incidentally included builds in gasoline stocks, those long oil bought almost every price dip on the day, chasing the dream of Chinese demand. In oil bulls’ corner was longer-term demand for crude predicted by the Paris-based International Energy Agency. The IEA raised its forecast for 2023 oil demand by 500,000 barrels per day to nearly 102 million barrels per day, citing the end of Covid lockdowns in China as a big factor. The IEA also cautioned that producer alliance OPEC+ might try to squeeze output to keep crude prices supported.

Chinese buying has always been a trigger for oil rallies, with the mood sufficiently elevated now by the IEA’s projections on demand from the world’s largest oil importer. The agency, which looks after the interest of oil consuming nations, used to be typically bearish on crude prices. Its shifted stance had been a boon for oil bulls seeking redemption from one of the worst starts in a year for crude demand. To be sure, not everyone’s buying into the dream of unbridled Chinese demand for oil until some hard shipment numbers are reported by the government in Beijing … Those long crude also fended off stinging U.S. inflation data and more hawkish Federal Reserve talk this week that suggested higher-for-longer interest rates – developments that aren’t usually good for oil.

Seng: Russia’s plan to cut oil production hardly moved the global markets as demand seems to have slumped for the time being. The early season concerns over low distillate inventories have abated as demand for home heating oil has not been seasonally normal. 

To contact the author, email [email protected]



Source link

#Analysts #Flag #Increase #USA #Commercial #Inventories