Traders weigh prospects for China demand after latest economic data

Myra P. Saefong and William Watts, MarketWatch

SAN FRANCISCO/NEW YORK
EnergiesNet.com 03 01 2023

Oil futures finished higher on Wednesday, after a volatile session that saw prices seesaw between losses and gains as traders digested the latest report on U.S. petroleum supplies and economic data from China.

The Energy Information Administration reported a 10th week rise in U.S. crude supplies, but the gain was also the smallest weekly climb in five weeks. China, meanwhile, saw a round of upbeat data on economic activity.

Price action

• West Texas Intermediate crude for April delivery CL00, 0.88% CL.1, 0.88% CLJ23, 0.88% rose 64 cents, or 0.8%, to settle at $77.69 a barrel on the New York Mercantile Exchange. Prices, based on the front-month contract, finished at their highest since Feb. 16, according to Dow Jones Market Data.
  
  
• May Brent crude BRN00, 0.11% BRNK23, 0.11%, the global benchmark, added 86 cents, or 1%, to $84.31 a barrel on ICE Futures Europe.
  
  
• Back on Nymex, April gasoline RBJ23, 1.14% climbed 1.2% to $2.6748 a gallon.
  
  
• April heating oil HOJ23, 2.27% rose 2.4% to $2.8738 a gallon.
  
  
• Natural gas for April delivery NGJ23, 2.69% tacked on 2.3% to $2.811 per million British thermal units.

Market drivers

The Energy Information Administration on Wednesday reported that U.S. crude inventories edged up by 1.2 million barrels for the week ended Feb. 24.

That marked a 10th straight weekly increase for crude supplies reported by the EIA, but the smallest weekly rise since the week ended Jan. 20.

On average, analysts forecast a climb of 350,000 barrels, according to a poll conducted by S&P Global Commodity Insights. The American Petroleum Institute late Tuesday reported a much larger 6.2 million barrel increase in U.S. crude supplies last week, according to a source citing the figures.

The EIA report also showed a weekly inventory decline of 900,000 barrels for gasoline, while distillate supplies rose by 200,000 barrels. The analyst survey had forecast inventory declines of 300,000 barrels for gasoline and 700,000 barrels for distillates.

Crude stocks at the Cushing, Oklahoma, Nymex delivery hub climbed by 300,000 barrels for the week, the EIA said.

The EIA also reported crude exports of 5.6 million barrels per day for the week ended Feb. 24.

In a tweet, Javier Blas, energy and commodities columnist at Bloomberg, referred to the export amount as “staggering,” given that a decade ago, America barely exported any oil. He also said it was a record high on gross basis.

The EIA data included an upward “adjustment” to crude stocks of 2.266 million barrels per day for the week ended Feb. 24. That followed a 2.073 million-barrel upward adjustment the week before.

“With the adjustment factor holding this high, this suggests that the EIA is not only underestimating domestic crude production, but also underestimating net imports of crude and potentially overestimating refinery runs amid what was expected to be the largest period of seasonal maintenance in recent history,” said Troy Vincent, senior market analyst at DTN.

Phil Flynn, senior market analyst at The Price Futures Group, pointed out to MarketWatch that there have been more than 45 million barrels of “adjustments” in three weeks.

Read: What are these EIA ‘adjustments’ in the weekly U.S. oil supply data tables all about?

Other market drivers

Economic data from China, meanwhile, was upbeat, suggesting stronger prospects for energy demand.

“A strong rebound was always likely given the economy has been in hibernation for such a long time, with the big question being whether it is sustainable, and on that, the jury is out with inventories currently at high levels,” said Michael Hewson, chief market analyst at CMC Markets UK.

China’s official manufacturing purchasing managers index rose to 52.6 in February from January’s 50.1, according to the National Bureau of Statistics. The official nonmanufacturing PMI, which covers both service and construction activity in the country, increased to 56.3 in February, compared with 54.4 in January, said the statistics bureau.

Meanwhile, Russia was set to cut crude production in March and limit exports in response to new rounds of price caps and sanctions imposed by Western nations after its invasion of Ukraine just over a year ago.

Crude prices fell in February, with pressure tied in part to shifting market expectations for Federal Reserve interest rate rises as the central bank struggles to bring down inflation. Expectations for higher rates boosted Treasury yields and lifted the U.S. dollar last month. A stronger dollar can be a weight on commodities priced in the currency, making it more expensive to users of other currencies.

If the Fed raises rates even more next month, that would put pressure on equities, and might lead to weakness in the energy market, Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch, told MarketWatch. Still, the Chinese economic data was “very bullish for energy.”

Overall, the risk is “definitely to the upside in energy markets,” he said.

03 01 2023