Market Watcher Outlines Oil Price Moves This Week

(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)

One of Rigzone’s regular market watchers takes a look at this week’s oil price moves, outlines some market surprises and reveals what traders will be eyeing next week. 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 again for this holiday-shortened trading week but have rebounded somewhat after six consecutive negative trading sessions. Lower refinery usage and large gains in raw crude and distillate inventories each played a role in keeping oil prices below the $80 per barrel mark. This was the ninth straight week of inventory gains. The softer prices occurred despite solid positive economic signals, which should be indicative of future growth in energy demand, as well as a 1.4 million barrel per day increase in crude exports. WTI touched on $73.80 per barrel at one point but buying interest ensued at that level and prices rose to back over $75. Brent crude followed a similar pattern, nearly breaching $80.40 per barrel on the low side before rebounding to over $82 again.

The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial inventories last week increased by 7.6 million barrels to a total of 479 million barrels, rising to nine percent above the five-year average for this time of year. The API had forecasted a change of +9.9 million barrels while a group of WSJ analysts had called for a change of +2.0 million barrels. U.S. refineries operated at 85.9 percent, down from 86.5 percent, the prior week. Gasoline stocks fell by -1.9 million barrels to 240 million, minus five percent vs the five-year average. Distillate stocks increased by 2.7 million barrels to 122 million barrels, lowering the deficit to 12 percent below the five-year average. Heating Oil stocks posted a 600,000 barrel gain to 7.5 million barrels during a winter week. Inventory at the key Cushing, OK, hub rose by 700,000 barrels to 40.4 million, or 53 percent of capacity there. Imports of crude oil were +6.3 million barrels vs 6.2 the week prior while oil exports were 4.6 million barrels vs 3.1. Exports of petroleum products were 5.9 million barrels last week vs 6.0 the week prior week. U.S. oil production held 12.3 million barrels per day vs 11.6 last year at this time.

The Joint Organizations Data Initiative (JODI) reported that global oil demand in December grew by 1.3 million barrels per day, which was 102 percent above pre-Covid levels. The increase in consumption was spread across Japan, Indonesia and South Korea. India, foreseeing massive power usage in 2Q23, has invoked an emergency order requiring all of the country’s coal plants to run at maximum output starting March 16 and until June 15. The government there believes a record high peak demand will occur in April. Meanwhile, the world’s third largest importer of oil expects to see its total fuel consumption rise by 4.7 percent during its next fiscal year which runs from April 2023 through March 2024. India’s economic growth is mirroring that of China some ten years ago. Energy markets will have to keep a watchful eye on India.

Wholesale gasoline prices are holding at about $2.40/gallon for March deliveries in New York Harbor after rising to over $2.70 three weeks ago. Meanwhile, the average price per gallon at the pump for last week was $3.37, -$0.027/gallon from January and $0.145/gallon below last year at this time. Diesel demand has come down and is now 14 percent below its four-week average for this time of year. There were several positive economic indicators this week which allowed all three major U.S. stock indexes to make some small gains. However, it’s likely they will still settle negative week on week. GDP growth for 4Q22 came in at 2.7 percent, down from the prior quarter’s +3.2 percent but positive nonetheless. Market expectations were +2.9 percent, however. Slower consumer spending appeared to be the main reason for the lower indicator but last month saw a three percent increase in retail consumption. Unemployment last month fell to a 53-year low and claims for unemployment benefits last week fell also. The U.S. Dollar Index is higher again week on week which will also make it difficult for crude to post a rally.

Rigzone: What were some market surprises?

Seng: Nine consecutive weeks of inventory increases to the point of being above average is surprising given the overall perception of a globally short oil market. China’s reopening was hardly mentioned as a factor in oil prices this week.

Rigzone: What developments/trends will you be on the lookout for next week?

Seng: Traders will be eyeing the impact of the latest cold front that has dipped into the U.S. for increased demand for heating oil. ‘Core’ winter is almost over and, thus far, heating oil demand has been lower than normal and inventories are actually increasing. Positive economic news continues to be regarded as possibly inflation-inducing by the equity market players. That, in turn, fuels fears of a further Fed rate increase which could stifle growth and decrease future demand for energy.

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