(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, Rigzone’s regular market watchers focus on market volatility, inventory reports, high-frequency trading and more. Read on for more details.
Rigzone: Which market expectations have actually happened over the past week – and which expectations have not?
Tom Seng, Director – School of Energy Economics, Policy and Business, Collins College of Business at the University of Tulsa: Oil prices are generally lower this week, but volatility remains elevated as mixed signals abound. On a daily basis, the market must now weigh the progress, or lack of progress, in the talks between Russia and Ukraine, as well as between Iran and the counterparties to their nuclear agreement. Meanwhile, additional sources of crude supply are not emerging despite high prices and pleas from the Biden administration, as well as the UAE’s stance that OPEC should increase production. Reports from China of rising Covid cases leading to lockdowns once again pushed prices below $100 a barrel at some point last week. April NYMEX WTI was as high as $109.50 a barrel and as low as $93.50 a barrel as traders digest the various reports. After starting the week at just over $133 a barrel, Brent crude bottomed out at just under $97 a barrel. IEA concerns over a global supply shortage, coupled with weekend pessimism over a settlement of the war in Ukraine, saw both grades trading higher but still lower by a week on the ‘other. A bearish weekly inventory report…couldn’t keep oil prices down.
China and India, the world’s largest and third-largest importers, are buying Russian crude according to tanker watchers who have seen VLCCs hired, signaling to the market that Russian oil is not discounted to any great extent. India would buy the Urals at a reduced price. France and Germany would also continue to import Russian crude. Surprisingly, the board of the Russian company Lukoil publicly called for an end to the armed conflict in Ukraine.
This week’s EIA State of Oil report said commercial crude oil inventories rose 4.35 million barrels last week to a total of 416 million barrels and are now 12% below the average for this time of year. API reported inventories rose 3.75 million barrels while WSJ analysts called for a drop of 1.8 million barrels. Refinery utilization was higher at 90.4%, compared to 89.3% the previous week. Total motor gasoline inventories fell 1.6 million barrels, but are now at the average of five for this time of year. Distillate inventories rose 0.3 million barrels, 16% below the five-year average. Crude oil stocks at Cushing Key, OK. hub increased by 1.79 million barrels to 24 million barrels, or 32% of available capacity. The United States Strategic Petroleum Reserve drew in 1.2 million barrels, leading to a remaining total of 575.5 million barrels. The US DOE has arranged to sell an additional 30 million barrels of SPR to seven US refiners. US oil production remains at 11.6 million barrels per day against 10.9 million barrels per day at the same time last year. U.S. crude and fuel inventories, including SPR, continue to sit at eight-year lows. The number of North American platforms increased by 13 last week to 663, the most since April 2020.
All three major U.S. stock indexes are up after slipping following news that the U.S. central bank will raise interest rates to help stem inflation. The US dollar is lower this week, supporting crude prices. However, Saudi Arabia is reportedly in talks with China to consider pricing its oil sales in yuan, a move that would weaken the greenback’s position as a global currency for trade. The average US pump price has now reached $4.29 a gallon with no signs of a pullback. Record numbers of LNG carriers wait to be loaded off the U.S. Gulf Coast as the Department of Energy has granted Cheniere’s Sabine River Pass LNG export facility a permit to increase deliveries to the ‘Europe.
Hillary Stevenson, Director, Sales Enablement at oil and gas data company Validere: Cushing, OK, inventories rose 1.8 million barrels to 24 million barrels for the week ending March 11. This was expected because the WTI delivery point was basically at the bottom of the reservoirs and had nowhere to go but up. Cushing stocks are likely to operate in the 22-30 million barrel stock range as long as a significant pullback in the futures curve persists.
Rigzone: What were the market surprises?
Sing: There have been few supporters of the US ban on importing all forms of Russian energy sources, although the UK has planned a phase-out by the end of the year. Oil price range highs/lows this week continue to illustrate the fickle nature of oil markets that seem to react to the slightest rumor. Keep in mind, however, the impact of “high frequency trading” (HFT) where the algorithms embedded in supercomputers only respond to price signals and do not absorb fundamental factors. You’re not running several hundred thousand contracts a day for a single forward month with human beings typing on keyboards.
Stevenson: WTI is trading below $100 a barrel on various geopolitical news – Iran Nuclear Deal, Ukraine Ceasefire. While I hope peace will come sooner rather than later, I think the sale was a bit premature.
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