Oil prices are rising despite large reserves in U. S.
2023.01.11 14:16
Oil prices are rising despite large reserves in U. S.
By Ray Johnson
Budrigannews.com – Bulls in the market bet instead on weakening rate hikes from sagging inflation and a Goldman Sachs call for a barrel to return to above $100 by the third quarter of this year, which defied a massive U.S. crude build to rally 3% Wednesday.
After reaching a session high of $77.81, New York-traded WTI crude was up $2.18, or 2.9%, to $77.30 per barrel at 13:20 ET (18:20 GMT).
After reaching an intraday high of $82.91, crude oil traded in London gained $2.33, or 2.9%, to $82.43.
Last week, the market tanked on concerns of a global recession and weak potential demand from China, China’s top oil importer, despite Beijing’s determination to move on from its strict COVID-zero policy. As a result, WTI and Brent experienced one of their worst openings in a year.
Crude oil rose on Wednesday as traders across the market bet on a significant drop in inflation numbers in the December CPI report, which is due on Thursday. According to Investing.com’s analysis of economists, year-over-year CPI growth decreased to 6.5% in December from 7.1% in November. When annual CPI growth reached 9.1% in June, inflation was roaring at a four-decade high.
At its February 1 policy meeting, the Federal Reserve will decide whether to continue lowering rate hikes based on the December CPI reading. Between June and November, the Federal Reserve increased rates by a record-breaking 75 basis points four times before implementing a 50-basis increase in December. The consensus is for a 25-basis point increase for February.
In addition to bets on lower inflation and rate hikes, comments made by Goldman Sachs commodities chief Jeff Currie, one of Wall Street’s most vocal supporters of oil, in an interview with Bloomberg TV suggested that a barrel could reach $100 by the end of the year.
“What is the best play for reopening? Currie said, “It is oil.” What is inactive? automobiles, trains, and planes. If you turn them all back on, there will be a significant increase in oil demand.
Currie continued, “If China and other Asian economies fully reopen from coronavirus restrictions, Brent oil could reach $110 by the third quarter.”
The Energy Information Administration, or EIA, of the United States of America, stated just a day ago that it anticipated that the global price of oil, which is based on Brent, would average $83 per barrel this year, down 18% from the level of just over $100 in 2022. Separately, on Wednesday, the EIA stated that inventories had increased by almost 19 million barrels last week, or 11 times more than they had been the week before, bucking market expectations for an inventory drop at a
U.S. media polled analysts predicted a crude draw of approximately 2.2 million barrels last week instead.
John Kilduff, a founding partner at the energy hedge fund Again Capital in New York, stated, “I think refiners just had a slowdown in product putouts last week because the weather hasn’t been cold enough, to necessitate the creation of, say, more heating oil.”
The daily average temperature over the past week was around 45 degrees Fahrenheit (7 Celcius), rather than the 35-25 degree Fahrenheit range (around 2 to -2 Celcius) that is typical for this time of year. This marked the beginning of the 2022/23 winter season.
The Energy Information Administration (EIA) reported that inventories of, which are refined into heating diesel, diesel for trucks, buses, trains, and ships, and fuel for jets, fell by 1.069 million barrels last week, exceeding the predicted decline of 472,000 barrels. Stockpiles of distillate decreased by 1.427 million barrels in the previous week.
On the front, compared to expectations for a build of just under 2 million barrels, inventories increased by 4.114 million barrels last week. Gasoline balances decreased by 346,000 barrels last week. America’s most popular fuel for automobiles is gasoline.
The EIA reported that crude inventories in the U.S. Strategic Petroleum Reserve, or SPR, decreased by only 800,000 barrels last week as the Biden administration reduced its reliance on the emergency oil stockpile, which it had used extensively over the previous year to increase market supply and lower fuel prices at the pump.
The EIA reported that SPR inventories decreased from 372.4 million barrels on December 30 to 371.6 million barrels during the week ending January 6.
The most recent draw was a stark contrast to previous declines from the reserve of up to 8 million barrels per week.
According to Kilduff of Again Capital, “This is probably the smallest SPR drawdown over the past year, pending confirmation from the EIA.” As a result of the drawdowns’ ability to increase market supply and lower gasoline retail prices, the administration’s reliance on the emergency oil reserve is effectively over.”
Since November 2021, the Energy Department has taken more than 200 million barrels from the SPR on President Joe Biden’s orders. The move reduced reserve stockpiles to levels not seen in nearly 40 years. According to the EIA’s historical data, the SPR’s stockpiles are the same as they were in December 1983 at their current level.
Over the past year, the SPR’s crude releases and other developments on the global market increased international oil supplies. As a result, crude prices fell from a high of more than $130 a barrel at the beginning of March, immediately following the invasion of Ukraine, to levels of around $80 a barrel or less today. According to data from the American Automobile Association, the cost of gasoline at the pump in the United States has also decreased, falling from a record high of $5 per gallon in the middle of June to a current average of less than $3.30.
The Biden administration announced late last year that it was reducing its reliance on the reserve and was prepared to increase its inventory, which led to the slowdown in SPR draws. To replenish the reserve, the administration is negotiating purchases with U.S. energy companies, beginning with a base offer of $70 per barrel.
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