Oil futures pared some of their early gains on Wednesday, after official U.S. data revealed a weekly climb of more than 5 million barrels in domestic crude inventories, declines in gasoline and distillate stockpiles, and a rise back to record U.S. oil production.
Developments tied to a potential ceasefire between Israel and Hamas have also helped to ease concerns over risks to oil supplies in the region, limiting gains for oil prices, analysts said.
Price moves
-
West Texas Intermediate crude for March delivery
CL00,
+0.93% CL.1,
+0.93% CLH24,
+0.93%
rose 12 cents, or 0.2%, to $73.43 a barrel on the New York Mercantile Exchange. It was trading at $73.65 just ahead of the supply data’s release. -
April Brent crude
BRN00,
+0.11% BRNJ24,
+0.11% ,
the global benchmark, was up 53 cents, or 0.7%, at $79.12 a barrel on ICE Futures Europe. -
March gasoline
RBH24,
+2.32%
added 1.2% to $2.2445 a gallon, while March heating oil
HOH24,
+2.90%
climbed 0.8% to $2.7652 a gallon. -
Natural gas for March delivery
NGH24,
-2.14%
traded at $1.965 per million British thermal units, down 2.2%, on track for the first settlement below $2 since late March.
Supply data
It appears that the increase in crude supplies was caused mainly due to a “big drop in refining in the Midwest,” said Phil Flynn, senior market analyst at The Price Futures Group. That was more than likely impacted by the power outage and shutdown of BP’s
BP,
oil refinery in Whiting, Ind., last week, he said. power outage and subsequent shutdown of the refinery.
The Energy Information Administration on Wednesday reported that U.S. commercial crude inventories rose by 5.5 million barrels for the week ended Feb. 2.
On average, analysts surveyed by S&P Global Commodity Insights forecast a weekly climb of 600,000 barrels. Late Tuesday, the American Petroleum Institute said U.S. crude inventories rose 674,000 barrels last week, according to a source citing the data.
The EIA report also revealed weekly supply declines of 3.1 million barrels for gasoline and 3.2 million barrels for distillates. The S&P Global Commodity Insights analyst survey showed forecasts for an inventory gain of 300,000 barrels for gasoline and a decline of 2.4 million barrels for distillates.
Petroleum product supplies are tightening and becoming “more of a concern,” Flynn told MarketWatch. “This is especially true of diesel, supplies which are falling further below the five-year average at a time when demand is rising.”
U.S. oil production climbed 300,000 barrels, back to a record 13.3 million barrels a day last week, the EIA said, while crude stocks at the Cushing, Okla., Nymex delivery hub were unchanged last week at 28.1 million barrels.
Market drivers
The “real reason” why oil’s not moving much higher is that there’s speculation about the potential for more talks for an Israel-Hamas peace deal, said Flynn.
Oil prices have remained largely rangebound, failing to build a significant risk premium despite the conflict in the Middle East that has escalated beyond the Israel-Hamas war.
Market participants “appear to be assuming that we will not see a significant escalation in the Middle East, at least an escalation which puts oil supply at risk,” Warren Patterson and Ewa Manthey, commodity strategists at ING, said in a note.
“It’s important to remember that while we are seeing disruptions to trade flows as a result of Red Sea developments, oil production remains unchanged as a result. Furthermore, the oil balance is comfortable through 1H24, while OPEC is sitting on a little more than 5 million barrels a day of spare capacity, of which more than 3 million barrels a day sits in Saudi Arabia,” they wrote.
Meanwhile, a monthly report from the Energy Information Administration on Tuesday forecast U.S. crude oil output to will grow by around 170,000 barrels a day in 2024 to average 13.1 million barrels a day, or mbd. This is 0.8% lower than the 13.21 mbd the EIA was forecasting last month.
U.S. crude supply grew a little more than 1 mbd last year, while a drop in the growth rate shouldn’t be a surprise amid a slowdown in drilling activity seen over much of last year, the ING strategists noted.
