Crude prices are (obviously) dramatically higher heading into this morning’s DOE inventory data (as geopolitical crisis dramatically trumped an unexpectedly large crude build reported by API).
Bloomberg Intelligence Energy Analyst Fernando Valle weighs in:
“The rally in WTI and Brent prices is being aided by escalating tension between Russia and NATO allies, but also by disappointing shale-output growth. Calls to the U.S. and OPEC+ to boost production may do little good, with OPEC still underdelivering on quotas at record levels.
“Global interest rates remain the key risk to 2022 oil demand, we believe. A significant hike by the Federal Reserve may hinder global investments and drive lower emerging-market consumption of both refined products and crude oil.”
But the next leg of this trade could be impacted in the short-term if API’s data is confirmed….
API
DOE
The official data confirmed API’s large crude build andthe 7th straight week of inventory increases at Cushing…
Source: Bloomberg
Cushing stocks are moving even lower, to their lowest since 2018. Bloomberg’s Devika Krishna Kumar notes that crude inventories at Cushing, Oklahoma, plunged below 25 million barrels and are fast approaching operational lows. This has been a key reason for the steep backwardation in the front-month U.S. crude futures spread as traders worry about tight supplies. March is expected to bring some respite though, as refiners conduct seasonal maintenance and demand cools.
Source: Bloomberg
US crude production was flat on the week..
Source: Bloomberg
U.S. crude imports from Russia averaged about 106,000 barrels a day last week. Volumes have remained muted in recent weeks after averaging zero for three weeks straight in January. It remains to be seen how flows will be impacted based on what kind of sanctions the U.S. imposes now that Russia has invaded Ukraine.
Source: Bloomberg
WTI was trading just above $97 ahead of the official data and was unmoved on the print…
“Oil prices continue to surge and are now reaching levels that are uncomfortable for consumers across the world,” Toril Bosoni, head of the International Energy Agency’s markets and industry division, said in a Bloomberg Television interview.
“The oil market is incredibly tight.”
Finally, we note that ‘sources’ have repeated the fact that the Biden administration is working with the IEA on a coordinated release of additional crude from strategic reserves. As we noted yesterday when the headline first hit and had zero effect on prices, isn’t it the definition of madness to repeat the same action and expect a different outcome?
Never mind that, Bloomberg is reporting that – in response to the soaring oil prices, which are sending gas prices at the pump near record lows – the Biden administration is considering another release from the Strategic Petroleum Reserve.
Let’s check back and see how that last SPR release worked out (remember the coincident tumble in oil was driven by the emergence of Omicron)… For now, since the last SPR release, gas prices at the pump are 15c more expensive and given the supply chain lag, look set to soar near record highs in the next week or so…
One final thing of note is that OPEC+ meets on March 2 to decide on output for April. As of Wednesday, delegates from some of the biggest members were saying that triple-digit oil wouldn’t cause them to pump faster. Their current strategy is to add 400,000 barrels a day of crude to the market each month.
It’s possible that OPEC increases production if there’s further escalation, according to Carole Nakhle, founder of consultant Crystol Energy.
“If they think this will threaten the stability of oil markets, I can see them putting more barrels on the market,” she said on a podcast produced by Dubai-based consultant and publisher Gulf Intelligence. It would probably be down to the likes of Saudi Arabia and the United Arab Emirates to boost output because many of the group’s other members would struggle, Nakhle said.
