Crude Falls on U.S. Plans to Release Crude from Strategic Petroleum Reserve

Mar WTI crude oil (CLH23) on Tuesday closed down -1.08 (-1.35%), and Mar RBOB gasoline (RBH23) closed down -4.26 (-1.68%).  

Crude oil and gasoline prices Tuesday closed moderately lower.  Crude prices extended losses from late Monday when the Biden administration said it would move forward with plans to sell 26 million more barrels of crude from the Strategic Petroleum Reserve (SPR).  

Losses in crude oil accelerated Tuesday morning after U.S. Jan CPI rose more than expected, which may keep Fed policy tighter for longer and slow economic growth and energy demand.  Nevertheless, crude prices Tuesday recovered from their worst levels when the dollar index (DXY00) fell to a 1-week low.

Crude prices dropped more than -20 cents/bbl below their Tuesday afternoon closing level when the API reported that U.S. crude supplies last week jumped +10.51 million bbl.  The consensus is that Wednesday's weekly EIA crude inventories will climb +2.0 million bbl.

A supportive factor for crude was Monday's comments from UAE Energy Minister Suhail Al Mazrouei, who said that despite Russia's plan to cut crude output, global oil markets remain balanced and OPEC+ producers don't need to intervene.  Last Friday, Russia said it plans to cut its oil production in March by 500,000 bpd in retaliation for international sanctions.  OPEC+ said they would not boost output to make up for the shortfall.  However, the Russian announcement had a limited bullish impact since Russia needed to cut production anyway to account for sanctions and reduced demand for Russian oil.

In a bullish factor, Vortexa on Monday reported that the amount of crude stored on tankers that have been stationary for at least a week fell -9.5% w/w to 72.85 million bbl in the week ended February 10.

According to Goldman Sachs, oil demand in China is picking up as the economy reopens, a bullish factor for crude.  Goldman reports that oil demand in China in mid-January rose to 15.5 million bpd from 14.5 million bpd in late November.  Goldman predicts that Chinese consumption of crude will climb by +1.0 million bpd in Q4 of 2023.

On February 1, the OPEC+ Joint Ministerial Monitoring Committee recommended keeping crude production levels steady as the oil market awaits clarity on demand in China and crude supplies from Russia.  Goldman Sachs predicts that OPEC+ will only start to reverse its supply cuts, currently at about 2 million bpd, in the second half of this year when accelerating demand will tighten the market.  OPEC crude production in January fell -60,000 bpd to 29.12 million bpd.

Last Wednesday's EIA report showed that (1) U.S. crude oil inventories as of February 3 were +4.0% above the seasonal 5-year average, (2) gasoline inventories were -5.3% below the seasonal 5-year average, and (3) distillate inventories were -15.0% below the 5-year seasonal average.  U.S. crude oil production in the week ended February 3 rose +0.8% w/w to a 2-3/4 year high of 12.3 million bpd, which is only 0.8 million bpd (-6.1%) below the Feb-2020 record-high of 13.1 million bpd.

Baker Hughes reported last Friday that active U.S. oil rigs in the week ended February 10 rose by +10 rigs to 609 rigs, moderately below the 2-1/2 year high of 627 rigs posted on December 2.  U.S. active oil rigs have more than tripled from the 17-year low of 172 rigs seen in Aug 2020, signaling an increase in U.S. crude oil production capacity.
 

• Crude Tumbles as U.S. Plans to Release Crude from Stategic Petroleum Reserve
• Crude Prices Gain on a Weak Dollar and Strength in Stocks
• Ample U.S. Crude Inventories Weigh on Prices
• Crude Closes Moderately Higher after Russia Cuts Oil Output