By Myra Saefong and Williams Watts/MarketWatch

SAN FRANCISCO
EnergiesNet.com 01 14 2022

Oil futures ended lower Thursday, with a significant rise in U.S. gasoline stockpiles last week raising concern over the omicron coronavirus variant’s impact on demand for fuel, even as domestic crude supplies stand at their lowest since 2018.

Prices fell despite continued weakness in the U.S. dollar, “signaling that the move higher in oil futures over the past month may have once again gotten too far ahead of the physical market reality,” said Troy Vincent, senior market analyst at DTN.

Hopes of “omicron burning through the population quickly has caused many to overlook the impact the current global wave of the virus is having on demand,” he told MarketWatch. Wednesday’s Energy Information Administration report “emphasized just how hard it is hitting gasoline demand despite the lack of new U.S. lockdowns.”

The EIA reported a larger-than-expected rise in gasoline supplies of 8 million barrels and a 2.5 million-barrel increase in distillate inventories.

West Texas Intermediate crude for February delivery CL00, 0.91% CLG22, 0.91% fell 52 cents, or 0.6%, to settle at $82.12 a barrel on the New York Mercantile Exchange. March Brent crude BRN00, 1.12% BRNH22, 1.12%, the global benchmark, lost 20 cents, or 0.2%, at $84.47 a barrel on ICE Futures Europe. WTI and Brent both finished Wednesday at their highest since Nov. 9.

Among the petroleum products traded on Nymex, February gasoline RBG22, 1.12% fell 0.3% to $2.384 a gallon, while February heating oil HOG22, 1.11% edged up by nearly 0.6% to $2.609 a gallon.NOW PLAYING: Hospitals Near ‘Breaking Point’ Amid Covid-Related Staff Shortages

Crude got a boost Wednesday after the EIA reported a larger-than-expected 4.6 million-barrel fall in U.S crude supplies for the week ended Jan. 7. Supplies, excluding those in the Strategic Petroleum Reserve, stood at 413.3 million barrels, the lowest since 2018.

“Although the fall in crude inventory was expected, rising gasoline stockpiles helped by further [SPR] releases by the Biden administration have helped level off prices,” said Louise Dickson, senior market analyst at Rystad Energy. “It remains to be seen whether this balance will last or if more bullish sentiment will return as the economy rebounds in the coming weeks.”

“However, downside risk remains as the demand for refined products continues to slump, keeping prices in check,” she said, in a note.

WTI remains up more than 9% since the start of the new year, while Brent is up more than 8% over the same stretch.

A record number of patients are currently in U.S. hospitals with COVID-19, but scientists see signs that the infection wave driven by the highly contagious omicron variant may be nearing a peak.

Dickson said Brent’s march toward $85 a barrel reflected optimism over Europe’s economic outlook and prospects for oil consumption, boosted by the by the lifting of restrictions to slow the spread of omicron by some countries in Europe.

Meanwhile, natural-gas futures NG00, -0.87% NGH22, -0.87% declined by 12.1% to $4.27 per million British thermal units. Prices gave up most of the 14% climb prices saw on Wednesday, when analysts cited forecasts for colder weather for the Northeast and Midwest through late January for the rise.

The EIA on Thursday said domestic supplies of natural gas fell by 179 billion cubic feet for the week ended Jan. 7. That compared with the average decline of 177 billion cubic feet forecast by analysts polled by S&P Global Platts, which pegged the five-year average supply decline for the period at 155 billion cubic feet.

Total stocks, however, now stand at 3.016 trillion cubic feet — 72 billion cubic feet above the five-year average, the government said.

The 179 bcf draw to supplies was the largest weekly drop “since depths of winter storm Uri last February that caused widespread failure of Texas oil, gas and electricity infrastructure amid freezing temperatures,” said DTN’s Vincent.

“Last week’s large decline in storage not only reflects the colder temps pushing up heating demand, but also natural gas production freeze offs that have limited production in places like Texas, just on a smaller scale than last year,” he said. But even with this large draw from storage, U.S. stocks are above the five-year average.

By Myra Saefong and Williams Watts from MarketWatch

marketwatch.com 01 13 2022