Oil Prices Slip Following Surge in US Crude Stockpiles
Oil Prices, Oil markets experienced a downturn on Thursday after a substantial increase in U.S. crude inventories, sparking concerns about demand in the world’s largest economy and primary oil consumer.
Brent crude futures dropped by 34 cents, or 0.4%, to $81.26 per barrel at 0337 GMT, while U.S. West Texas Intermediate crude futures saw a decline of 38 cents, or 0.5%, to $76.26 per barrel.
The previous day witnessed both contracts shedding over $1 per barrel, driven by the surge in U.S. crude inventories, coinciding with a decline in refining activity to its lowest levels since December 2022.
According to the Energy Information Administration (EIA), U.S. crude inventories soared by 12 million barrels to 439.5 million barrels in the week leading to February 9, significantly surpassing analysts’ projections in a Reuters poll, which expected a rise of 2.6 million barrels.
While the substantial increase in stocks raised alarm bells among traders regarding demand, certain analysts attributed the surge primarily to lower refinery utilization rates, notably due to BP (NYSE:BP)’s 435,000 barrels per day Whiting plant in Indiana being offline.
Analysts remarked, “The continued outage at BP’s Whiting refinery will have contributed to lower run rates, along with some other refinery maintenance. Lower refinery run rates meant that gasoline stocks declined.”
On the supply front, Kazakhstan announced its intent to rectify its oil overproduction in January within the next four months, in adherence to its OPEC+ commitments. Similarly, Iraq pledged to review its oil production and address any excess output above its OPEC+ voluntary cuts in the upcoming four months, if detected.
“This precedes OPEC’s March meeting, where the group intends to decide on the extension of supply curbs into the second quarter,” noted ANZ analysts in a Thursday briefing, referring to the Organization of the Petroleum Exporting Countries.
“Any indications that an extension seems unlikely would cast a shadow on sentiment across the oil market.”
Nevertheless, EIA data also revealed that gasoline and distillate stocks experienced steeper declines than anticipated. Gasoline stocks decreased by 3.7 million barrels to 247.3 million barrels, contrasting expectations for a draw of 1.2 million barrels.
Distillate stockpiles witnessed a decline of 1.9 million barrels to 125.7 million barrels, compared to expectations for a drop of 1.6 million barrels.
Fuel demand remains robust, buoyed by a resurgence in air travel to pre-COVID levels, according to JPMorgan analysts.
“Our high-frequency demand indicators indicate oil demand increasing by 1.6 million barrels per day in the first two weeks of February compared to January,” stated JPMorgan Commodities Research analysts in a memo, highlighting increased travel activity in China during the Lunar New Year holiday.
In conclusion, the oil market’s trajectory remains influenced by a delicate balance between supply dynamics, refining activity, and global demand patterns, with investors keenly monitoring developments ahead of OPEC’s pivotal meeting in March.
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