Crude Oil prices declined in New York after an industry report showed U.S. crude stockpiles rose last week amid a spate of refinery outages from the country’s recent cold snap.
Crude Oil Prices Slip After U.S. Supply Rise
The industry-funded American Petroleum Institute was said to report a 1.03 million-barrel build in domestic oil inventories, compared to expectations for a decline. At the same time, U.S. drillers have already restored about 80% of crude production in parts of Texas following the polar blast.
“People have been counting on continuous drawdowns, so there will be these surprise builds on occasion,” said Phil Streible, chief market strategist at Blue Line Futures LLC in Chicago.
Technical indicators were also showing a pullback in benchmark crude prices was overdue after they jumped 18% this month. The rally has been supported by production cuts from Saudi Arabia and an improving outlook for demand.
The futures curve continues to reflect tightening supplies, with Brent’s nearest contracts trading at a premium to later ones in a bullish pattern known as backwardation. The market is pricing in a strong short-term deficit, as oil stockpile declines continue at a rate of 2 million barrels a day to 3 million barrels a day..
Meanwhile, Saudi Arabia and Russia will once again head into an OPEC+ meeting with differing opinions about adding more crude to the market, potentially pressuring the recent rally. Saudi Arabia is calling for caution while Moscow appears to favor a supply hike. The group will meet March 4 to discuss whether to provide more crude to the market in April.
“It’s unmistakable that we’ll see some increase, but how much we get” is still uncertain, said Bill O’Grady, executive vice president at Confluence Investment Management in St. Louis. “The Saudis like this price level a lot, because it’s high enough where they generate good levels of income but low enough to where they don’t anticipate a huge pickup in U.S. production.”
Crude production from the Texas portion of the Permian Basin has rebounded significantly to around 2.9 million barrels a day, from just 600,000 to 700,000 exactly a week ago. Typically, the area produces roughly 3.5 million barrels a day.
“This recovery is largely due to a return of electricity to the region,” Gilbert said.
The API report showed stockpiles grew at the nation’s largest storage hub in Cushing, Oklahoma, and gasoline inventories also rose. The U.S. government will report its storage figures on Wednesday.
Other energy infrastructure impacted by the U.S. deep freeze is also in the process of restarting. Plains All American Pipeline LP plans to restore normal operations at 16 oil pipelines after notifying users last week of a force majeure, according to a person familiar with the matter, while at least eight refineries in Texas were trying to restart as of early Tuesday, with varying degrees of success.
- Apollo Global Management Inc. and Global Infrastructure Partners are among suitors that bid for a roughly $10 billion stake in Saudi Aramco’s oil pipelines, people familiar with the matter said.
- U.S. shale explorers lost hundreds of millions of dollars in oil production from last week’s historic freeze that crippled Texas and left millions without power or water for days.
- California is beginning to feel the ripples of oil refinery shutdowns in Texas, with gasoline prices rising faster in the Golden State since a deep freeze crippled fuel-making plants on the Gulf Coast.
Bank of America said Brent prices could temporarily spike to $70 per barrel in the second quarter.
In the United States, traffic at the Houston ship channel was slowly returning to normal after last week’s winter storm, although production was not expected to fully restart soon.
Some U.S. shale producers forecast lower oil output in the first quarter.
