Oil Rollercoasters In Holiday Shortened Trading Week

(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author.)

In this week’s edition of oil and gas industry hits and misses, one of Rigzone’s regular market watchers looks at this week’s oil price moves, the Covid-19 situation in China, cold fronts in the U.S. and more. Read on for more detail.

Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?

Tom Seng, Director – School of Energy Economics, Policy, and Commerce, University of Tulsa’s Collins College of Business: In the holiday-shortened trading week, oil prices peaked early but fell later as concerns over the Covid outbreaks in China coupled with an unexpected increase in inventories sent them lower week-on-week. After trading near $81.20 per barrel, WTI fell to below the $77 mark at one point only to rebound to just under $79 per barrel. Meanwhile, Brent’s high was $85.60 per barrel, falling to near $81.25 then rising to over $82 per barrel. Covid-19 continues to spread throughout China with reports of overcrowded hospitals and crematoriums. Supply chain issues are emerging again as the impact of the virus on China’s economy is having ripple effects throughout the globe. Despite what appears to be a dire situation, China has said it will open its country up to international travelers next month. Russia’s ban on selling oil to countries which have imposed the $60 per barrel price cap appears to have little impact on prices thus far. India, China and Turkey will still provide outlets for the Urals as those countries are not participating in the price cap.

This week’s EIA Weekly Petroleum Status Report indicated that inventories of commercial crude rose slightly by 718,000 barrels to 419 million, shrinking the deficit back to six percent below normal for this time of year. The gain was largely attributed to more oil leaving the Strategic Petroleum Reserve since refinery utilization actually increased. The API reported that inventories decreased 1.3 million barrels while the WSJ survey predicted a decrease of 700,000 barrels. Refinery utilization rose to 92 percent vs 90.9 percent the prior week. Total motor gasoline inventories fell 3.1 million barrels to 223 million barrels, now at four percent below average. Distillates increased 283,000 barrels to 120.2 million barrels, still seven percent below normal. Heating oil stocks held at about 8.2 million barrels. Crude oil stocks at the key Cushing, OK, hub dropped 195,000 barrels to 25.0 million barrels, or 33 percent of capacity. Imports of crude oil were 6.2 million barrels per day, while crude exports were 3.5 million barrels per day. Exports of refined products were 5.7 million barrels per day, down from 6.3 million barrels per day. Volumes withdrawn from the Strategic Petroleum Reserve were 3.5 million barrels, which dropped the total inventory to 375 million barrels, the lowest level since 1984 and 214 million barrels less than a year ago. U.S. oil production was 100,000 barrels per day lower at 12.0 million barrels per day vs 11.8 million barrels per day last year at this time.

All three major stock indexes are poised to settle positive on the week but look to be much lower than the start of 2022. Crude prices couldn’t muster any gains despite a lower U.S. Dollar.

Rigzone: What were some market surprises?

Seng: Natural gas prices have fallen below the $5.00 mark on the prospect of warmer weather ahead despite the EIA’s Weekly Natural Gas Storage Report, which showed inventory levels are back to a deficit of three percent vs the five-year average for this time of year. The cold fronts coming in so far have been extreme and have dipped deeply into the country’s mid-section. And the coldest months are yet to come.

Rigzone: What developments/trends will you be on the lookout for next week?

Seng: The key EIA inventory reports this week only reflect activity through last Friday. Next week’s numbers should reflect the impact of Winter Storm Elliott on the East Coast. Conversely, the thousands of flights canceled by Southwest Airlines could lead to a gain in distillate inventories.

To contact the author, email andreas.exarheas@rigzone.com