Crude Falls on Dollar Strength and Surge in EIA Crude Inventories

Mar WTI crude oil (CLH23) on Wednesday closed down -0.47 (-0.59%), and Mar RBOB gasoline (RBH23) closed up +0.93 (+0.37%).  

Crude oil and gasoline prices Wednesday settled mixed.  A rally in the dollar index (DXY00) Wednesday to a 1-1/4 month high was bearish for energy prices.  Crude prices extended their losses after Wednesday's weekly EIA report showed U.S. crude inventories surged to a 20-month high.  Crude prices recovered most of their losses, and gasoline posted modest gains, on the outlook for increased global energy demand.

In a bullish factor, the International Energy Agency (IEA) Wednesday raised its 2023 global oil demand forecast by +200,000 bpd to 101.9 million bpd from a prior estimate of 101.7 million bpd, citing the reopening of China's economy.  

Another bullish factor was Monday's comment by UAE Energy Minister Suhail Al Mazrouei 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.

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 by -60,000 bpd to 29.12 million bpd.

Wednesday's weekly EIA inventory report was mainly bearish for crude prices.  EIA crude inventories rose +16.28 million bbl to a 20-month high, well above expectations of a +2.0 million bbl increase.  Also, gasoline stockpiles rose +2.3 million bbl to an 11-month high, more than expectations for a +1.5 million bbl build.  In addition, crude supplies at Cushing, the delivery point for WTI futures, rose +659,000 bbl to a 19-1/2 month high.  On the positive side, EIA distillate inventories unexpectedly fell -1.29 million bbl versus expectations of a +1.0 million bbl build.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of February 10 were +7.3% above the seasonal 5-year average, (2) gasoline inventories were -4.9% below the seasonal 5-year average, and (3) distillate inventories were -15.3% below the 5-year seasonal average.  U.S. crude oil production in the week ended February 10 was unchanged w/w at 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.

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