This week, one of Rigzone’s regular market watchers takes a look at the latest oil price moves, flags market surprises and outlines the developments to watch out for next week.
Tom Seng, Assistant Professor in Energy, Texas Christian University’s Ralph Lowe Energy Institute: ‘What goes up, must come down’ – or, so they say. The opposite is also true, ‘What goes down must come up’, especially, when you are talking about a volatile market like crude oil. After a seven-day downtrend, oil rebounded this week on a combination of fundamental factors and a technical move. WTI rallied to barely shy of the $78.85 per barrel mark this week but fell back late to around $77.70 per barrel. In a similar pattern, Brent crude, the international standard, managed a high of $85.50 per barrel before also retreating to close to the $84 level. A stronger U.S. Dollar early-on in the week took oil to an eight-week low, allowing prices to breach the lower-end of a key technical indicator that measures deviation from the average. Technical buying ensued while prices also received support from Saudi Arabia raising the price for March deliveries to Asia, an indication they believe Chinese demand will be strong. Both key grades of oil look to settle higher week-on-week.
The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial inventories last week increased by 2.4 million barrels to a total of 455.1 million barrels, rising to four percent above the five-year average for this time of year. The API had forecasted a change of -2.2 million while a group of WSJ analysts had called for a change of +1.8 million barrels. U.S. refineries operated at 87.9 percent, up from the prior week’s 85.7 percent. Gasoline stocks increased five million barrels to 240 million, minus six percent vs the five-year average. Distillate stocks gained 2.9 million barrels to 120.5 million barrels, shrinking the deficit to 15 percent below the five-year average. Inventory at the key Cushing, OK, hub rose by 1.1 million barrels to 39 million, or 50 percent of capacity there. Imports of crude oil were +7.0 million barrels vs 7.3 the week prior while oil exports were 2.9 million barrels vs 3.5. Exports of petroleum products were 6.2 million barrels last week vs 5.8 the week prior week. U.S. oil production rose to a 34-month high of 12.3 million barrels per day vs 12.2 the prior week and 11.6 last year at this time.
Goldman Sachs analysts foresee a global oil shortage taking place in 2Q23 as Chinese demand accelerates and the impact of the ban on Russian oil exports takes full effect. Adding to that sentiment was Saudi Arabia’s energy minister who has been saying that investment in oil has been inadequate to meet rising consumption. Meanwhile, India’s energy minister said his country will buy oil from wherever provided the terms are beneficial to them. India has been named as one of the importers willing to purchase Russian Urals.
All three major U.S. stock indexes spent another week of ups-and-downs as investors weighed earnings releases, as well as statements from the Federal Reserve. The central bank continues its stance on combatting inflation by raising rates, although the increments may not be as large. Meanwhile the U.S. Dollar Index (DXY) remained in positive territory for most of the week. Strength in the greenback tends to cause foreign investors to leave the oil market. European markets are seeing some positive signs that may alleviate concerns over international recession.
What were some market surprises?
Seng: Henry Hub natural gas continues to trade at far less than the $7.00/MMBtu we saw just eight weeks ago while falling to near $2.35 this week. The only strength gained was from a storage report that indicated a higher withdrawal last week than expected. It’s still early February, a month when some of the coldest temperatures get recorded and just a week after a major cold front brought low temps, snow and ice as far south as Texas and the Southeast U.S.
What developments/trends will you be on the lookout for next week?
Seng: Traders will be watching more earnings reports and government data for indicators of the health of the economy. Especially important will be next week’s release of the Consumer Price Index (CPI), the prime measure of inflation and the reaction of the Federal Reserve Bank once again.