• EIA data show U.S. crude supplies posted the largest weekly decline year to date

Myra P. Saefong and Joseph Adinolfi, MarketWatch

SAN FRANCISCO/NEW YORK
EnergiesNet.com 03 29 2023

Oil futures ended with a modest loss on Wednesday, giving up early gains that lifted prices to their highest intraday level in just over two weeks.

Oil got an early boost after U.S. government data revealed the biggest weekly crude supply decline year to date, but prices turned lower as traders also assessed demand expectations, prospects for a recession, and a temporary supply disruption.

Price action

• West Texas Intermediate crude for May delivery CL00, 0.01% CL.1, 0.01% CLK23, 0.01% fell 23 cents, or 0.3%, to settle at $72.97 per barrel on the New York Mercantile Exchange. Prices traded as high as $74.37 during the session, the highest intraday level for a front-month contract since March 14, FactSet data show.
  
  
• May Brent crude  BRN00, -0.05% BRNK23, -0.06%, the global benchmark, lost 37 cents, or 0.5%, to $78.28 per barrel on ICE Futures Europe.
  
  
• Back on Nymex, April gasoline  RBJ23, -0.28% declined by 1.6% to $2.6681 per gallon.
  
  
• April heating oil HOJ23, 0.62% dropped 4% to $2.6581 per gallon.
  
  
• April natural gas  NGJ23 declined by 1.9% to end at $1.991 per million British thermal units on the contract’s expiration day, the lowest since September 2020. The May contract NGK23, 0.43% settled at $2.184, up 1.7%.

Supply data

The Energy Information Administration on Wednesday reported the largest year-to-date weekly decline in crude inventories.

Crude stockpiles fell by 7.5 million barrels for the week ended March 24, the EIA said.

On average, analysts forecast a decline of 5.5 million barrels, according to a survey by S&P Global Commodity Insights. The American Petroleum Institute, a trade group, separately reported on Tuesday a 6.1 million-barrel weekly decline for crude stockpiles, Dow Jones reported, citing a source.

“A combination of higher refining activity, lower imports and ongoing strength in exports has resulted in a large draw to crude inventories,” said Matt Smith, lead oil analyst, Americas, at Kpler, in emailed commentary. “Crude inputs hit their highest level so far this year as refiners exit spring maintenance.”

The EIA report also showed a weekly inventory decline of 2.9 million barrels for gasoline, while distillate supplies edged up by 300,000 barrels. Analyst surveyed by S&P Global Commodity Insights had forecast supply decreases of 4.8 million barrels for gasoline and 2 million barrels for distillates.

“Strength in implied demand for gasoline resulted in a solid stock draw, while an easing in implied distillate demand resulted in a build,” said Smith.

Distillate demand remains lower year on year, down 10.1% year on year on the four-week average, while implied gasoline demand on the four-week average has finally clambered higher on a year-on-year basis, he said. That’s largely driven by prices at the pump on the national average being lower by 80 cents a gallon compared to this time last year, he said.   

Crude stocks at the Cushing, Okla., Nymex delivery hub fell by 1.6 million barrels for the week, the EIA said, while total U.S. petroleum production fell by 100,000 barrels to 12.2 million barrels a day.

Market drivers

Overall, the oil market is “apprehensive because the banking crisis and liquidity is still a “bit sketchy,” said Phil Flynn, senior market analyst at The Price Futures Group, explaining why oil prices likely turned lower by the day’s settlement.

Even so, oil-market analysts pointed to factors that helped fuel the recent rebound in oil after prices fell to the lowest price in more than a year earlier in March.

A legal dispute in Iraq between the Kurdistan Regional Government and the central government in Baghdad has disrupted crude exports via a Turkish pipeline and helped to boost global crude prices.

The dispute is believed to be reducing regional supplies by 400,000 barrels to 450,000 barrels per day, analysts have said.

Going forward, Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch that risks to crude prices are on the upside.

“We have recently seen a little weakness to the U.S. dollar giving [dollar-denominated] crude a tailwind,” he said. The Biden administration, meanwhile, also still has to replenish the Strategic Petroleum Reserve, he added.

U.S. Energy Secretary Jennifer Granholm said the U.S. could start buying back crude oil for the SPR late this year, Reuters reported late Tuesday.

The Biden administration last year announced the emergency sale of 180 million barrels of SPR crude to help lower gasoline prices, and has said it would refill the reserve when oil prices fell to around $70 a barrel.

There’s also likely to be further strength in crude on the back of the “reopening of China and increased demand here in the U.S. for gasoline,” said Zahir. “All of these factors  we feel will keep the risk to the price of crude to the upside for the days and weeks ahead.”

marketwatch 03 29 2023