Oil Traders Weigh Up Market This 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)

This week, one of Rigzone’s regular market watchers takes a look at demand trends, oil price moves, and a surprising Henry Hub development. 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, Assistant Professor in Energy, Texas Christian University’s Ralph Lowe Energy Institute: Oil traders this week had to weigh the potential of increasing Chinese demand vs economic news that caused some concerns over possible recession again. The end of the U.S. Department of Energy’s sales from the Strategic Petroleum Reserve also added some bullish sentiment. WTI hit a nine-week high as it approached the $82.65 per barrel mark. The U.S. grade looks to settle near flat from last week on the up-and-down moves while still maintaining its three-week uptrend. And, despite lower-than-normal U.S. refinery inputs, the WTI/Brent spread, at over $6.00 per barrel, has aided the export market. Meanwhile, Brent crude managed a high of $89.15 per barrel while holding north of $85.00. The international standard appears to be trading essentially flat week-on-week as well. The EU ban on Russian imports of crude goes into effect on February 5. Traders are also reluctant to take large bets on price direction ahead of the OPEC+ group on the 1st.

The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial inventories last week increased by 0.5 million barrels to a total of 448.5 million barrels, or three percent above the five-year average for this time of year. The API had forecasted a change of +3.4 million while a group of WSJ analysts had called for a change of +100,000 barrels. U.S. refineries operated at 86.1 percent, up from the prior week’s 85.3 percent, with some refineries still undergoing repairs related to this month’s heavy snowfalls and freezing temperatures. Gasoline stocks increased 1.76 million barrels to 232 million, minus eight percent vs the five-year average. Distillate stocks dropped 0.5 million barrels to 115 million and are holding at 20 percent below the five-year average. Heating oil stocks decreased -220,000 barrels to 7.66 million barrels. Inventory at the key Cushing, OK, hub rose 4.3 million barrels to 35.7 million, or 47 percent of capacity there. Imports of crude oil were 5.9 million barrels vs 6.9 the week prior, while oil exports were up to 4.7 million barrels vs. 3.9 million. Exports of petroleum products were 5.8 million barrels last week vs 6.3 million the week prior week. For the first time in several months, there were no withdrawals of crude from the SPR. U.S. oil production held at 12.2 million barrels per day  and 11.6 million barrels per day last year at this time.

The U.S. economy got mixed signals this week as positive GDP growth was countered by lower productivity numbers and huge layoff announcements, mostly by large tech companies. 4Q22 GDP grew at a seasonally adjusted annual rate of 2.9 percent, down from 3.2 percent in 3Q22 but still positive nonetheless. Consumer spending slowed but was also positive at +2.1 percent, while business investment ticked-up a mere 0.7 percent. Economic growth for 4Q22 was one percent higher than 4Q21. However, both manufacturing and service sectors remained in contraction territory. All three major U.S. stock indexes are higher on the week as a result of the GDP report. The US Dollar Index (DXY) is down week-on-week which adds support to oil prices.

Rigzone: What were some market surprises?

Seng: Henry Hub natural gas prices continue to amaze, falling below the $3.00 mark for the first time since May 2021 on mild forecasts and a year-on-year surplus in storage.

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

Seng: Traders will be eyeing actual data supporting an increase in oil demand by China as well as the February 1 OPEC+ group meeting.

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