Myra P. Saefong and William Watts, MarketWatch

SAN FRANCISCO/NEW YORK
EnergiesNet.com 02 15 2023

Oil futures settled lower on Wednesday after official U.S. data revealed a more than 16 million-barrel weekly climb in crude inventories.

The International Energy Agency, meanwhile, raised its forecast for oil demand in 2023 to a record, while boosting its supply forecast.

Price action

• West Texas Intermediate crude for March delivery CL.1, -0.29% CL00, -0.25% CLH23, -0.29% fell 47 cents, or 0.6%, to settle at $78.59 a barrel on the New York Mercantile Exchange after dropping to as low as $77.25 during the session.
  
  
• April Brent crude BRN00, -0.40% BRNJ23, -0.39%, the global benchmark, edged down by 20 cents, or 0.2%, to $85.38 a barrel on ICE Futures Europe.
  
  
• Back on Nymex, March gasoline RBH23, -0.73% rose 0.4% to $2.4978 a gallon.
  
  
• March heating oil HOH23, -0.47% fell nearly 3.3% at $2.8444 a gallon.
  
  
• March natural gas NGH23, 2.55% declined by 3.7% at $2.471 per million British thermal units.

Supply data

Crude oil showed “one of the biggest increases in inventories we have seen in quite some time,” Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch.

The Energy Information Administration on Wednesday reported that U.S. commercial crude inventories rose by 16.3 million barrels for the week ended Feb. 10. That marked an eighth consecutive week of supply gains reported by the EIA.

On average, analysts forecasted a climb of 600,000 barrels in U.S. crude inventories, according to a poll conducted by S&P Global Commodity Insights. The American Petroleum Institute late Tuesday reported a 10.5 million barrel rise, according to a source citing the data.

The EIA data includes an upward “adjustment” to crude stocks of 1.967 million barrels per day for the week ended Feb. 10, which added roughly 14 million barrels of supply for the week. The government agency said the adjustment, formerly known as “unaccounted-for crude oil,” is a “balancing item.”

Pointing out that adjustment, Matt Smith, lead oil analyst, Americas, at Kpler explained to MarketWatch that the change is “due to some combination of the EIA underestimating imports and/or production, and overestimating exports and/or refinery runs.” The build seems “legitimate, the underlying data just doesn’t explain it.”

Phil Flynn, senior market analyst at The Price Futures Group, said the weekly adjustments are “a growing source of irritation” for traders at a time when risk to global oil supply has been high.

The EIA report showed a weekly inventory gain of 2.3 million barrels for gasoline, while distillate supplies fell by 1.3 million barrels for distillates. The S&P Global Commodity Insights survey had forecast inventory an inventory increase of 1.6 million barrels for gasoline and a decline of 100,000 barrels for distillates.

The “enormous” weekly build to crude stocks “reflects refinery maintenance season nearing the peak of offline capacity,” said Troy Vincent, senior market analyst at DTN. “However, it’s important to note that despite maintenance season leading to weakness in refinery runs, gasoline inventories continued to build,” he said.

The gasoline supply increase and modest rise for distillates continue to “speak to weakness in domestic demand for refined fuels,” said Vincent.

Crude stocks at the Cushing, Okla., Nymex delivery hub, meanwhile, rose by 600,000 barrels for the week, the EIA said.

Other market drivers

“The SPR release is a factor” in oil’s decline, said Zahir.

The U.S. Energy Department announced on Monday afternoon a “notice of sale” to meet its obligation to Congress to sell 26 million barrels of crude oil from the SPR this year, which is part of a congressional mandate put in place years ago.

Still, given that the situation in Ukraine could escalate, the refilling of the SPR that needs to be done, and the upcoming driving season, “we feel the risk is to the upside [for oil], especially with the barrels taken off the market by Russia,” said Zahir. “Volatility we feel will be the norm in the days and weeks ahead.”

Read: Russia Cut Oil Output in Response to Western Sanctions – WSJ

For now, a stronger U.S. dollar, buoyed in the wake of a stronger than expected climb of 3% in January U.S. retail sales, also pressured dollar-denominated prices of oil on Wednesday.

“A strong, resilient consumer makes the battle against inflation more challenging for the [Federal Reserve] since they must raise rates to stifle demand,” StoneX’s Kansas City energy team wrote in Wednesday’s newsletter. “A big beat on retail sales provides more evidence that further rate hikes might be needed to curb demand.”

Oil prices weakened Tuesday after the U.S. January consumer-price index reading showed inflation proving sticky, raising expectations for future Federal Reserve interest rate increases.

Meanwhile, the Paris-based IEA said in a monthly report released Wednesday that it expects oil demand to grow to 101.9 million barrels a day this year, which would be a record.

The IEA expects the crude market to fall into deficit in the second half of the year, with demand for oil to exceed supplies by 1.4 million barrels a day in the third quarter and 1.9 million barrels a day in the fourth quarter.

marketwatch.com 02 15 2023