Oil prices settle lower, but global supply risks limit losses
Oil futures settled with a modest loss on Thursday, easing back from their highest levels since 2014, following an unexpected weekly rise in U.S. crude supplies, but geopolitical risks to global supplies helped to limit price losses.
Crude-oil supplies had a surprise build, though it was smaller than what was reported by the trade group American Petroleum Institute late Wednesday, and it was “enhanced” by a release from the Strategic Petroleum Reserve, Phil Flynn, senior market analyst at The Price Futures Group, said following the release of the Energy Information Administration report. Stocks in the SPR edged down by 1.4 million barrels, the EIA data showed.
The government agency reported on Thursday that U.S. crude inventories, excluding the SPR, climbed by 500,000 barrels for the week ended Jan. 14.
On average, analysts had forecast a fall of 700,000 barrels, according to a poll conducted by S&P Global Platts. The American Petroleum Institute on Wednesday reported a 1.4 million-barrel climb, according to sources. Data were delayed by a day this week because of Monday’s Martin Luther King, Jr., holiday.
The crude stock build reported by the EIA followed seven consecutive weeks of declines, and came as refinery runs dropped to their lowest since mid-November, said Matt Smith, lead oil analyst, Americas, at Kpler.
On its expiration day, the February contract for West Texas Intermediate crude (CL) (CLG22) fell 6 cents, or nearly 0.1%, to end at $86.90 a barrel on the New York Mercantile Exchange. The most actively traded March contract (CL00) (CLH22) which is now the front month, lost 25 cents, or 0.3%, to settle at $85.55 a barrel.
On Wednesday, WTI and Brent crude both posted their highest finishes since October 2014. Through Thursday, WTI is up 15.5% so far in the new year, while Brent has rallied 13.6%.
The EIA also reported a weekly inventory increase of 5.9 million barrels for gasoline, while distillate stockpiles fell by 1.4 million barrels.
“Gasoline inventories did come in higher than expected, but ready-to-use gasoline supplies are still relatively tight,” said Flynn. Gasoline supplies are expected to increase at this time of year, so “that wasn’t a big surprise and if you look at the gasoline demand week over week, it was up modestly from last week’s drop.”
The S&P Global Platts survey expected a supply gain of 2.4 million barrels for gasoline and an inventory decline of 1.1 million barrels for distillates. The EIA data showed crude stocks at the Cushing, Okla., Nymex delivery hub edged down by 1.3 million barrels for the week.
“Gasoline inventories showed another chunky build” and they’re now up a “whopping 35 million barrels, or 17%, in the last eight weeks,” said Kpler’s Smith. “Distillate inventories fell for the first week in five as implied demand rebounded strongly.”
Overall, oil prices “continue to look buoyant, as the predictions for a move towards $100 a barrel in the coming weeks get ever louder,” said Michael Hewson, chief market analyst at CMC Markets UK, in a market update.
“With the U.K. dropping recent COVID restrictions, expectations over demand as we head into the spring have continued to rise, while supply chain constraints serve to limit the downside,” he said.
Oil traders also continue to monitor developments in Ukraine, as U.S. President Joe Biden walked back a heavily criticized comment made a day earlier about Russian President Vladimir Putin potentially launching a “ minor incursion ” into Ukraine.
“If any assembled Russian units move across the Ukrainian border, that is an invasion,” Biden said Thursday ahead of a meeting on infrastructure. “If Putin makes this choice, Russia will pay a heavy price.”
Natural-gas futures extended their recent losses, even after a report from EIA revealed a weekly drop in U.S. supplies of the fuel that was bigger than the five-year average.
The EIA reported on Thursday that domestic natural-gas supplies fell by 206 billion cubic feet for the week ended Jan. 14. That compared with the average decline of 193 billion cubic feet forecast by analysts polled by S&P Global Platts, which pegged the five-year average supply fall for the period at 167 billion cubic feet.
February natural gas (NGG22) settled at $3.802 per million British thermal units, down 5.7%, after losing 5.9% on Wednesday.
“Prices have found selling interest despite continued colder-than-normal weather forecasts, as inventories are still expected to exit winter at healthy levels, due to the strong recovery charted during December,” said Christin Redmond, commodity analyst at Schneider Electric, in a daily note.