Oil Slips as U.S. Inventory Rise Offsets China Hopes
Oil slipped on Wednesday, adding to a decline in the previous session, as a rise in U.S. crude inventories and global recession worries edged out optimism for a demand recovery in China.
Crude has rallied in 2023, with global benchmark Brent crude topping $89 a barrel this week for the first time since early December, on the ending of China’s COVID controls and hopes that the rise in U.S. interest rates will soon taper off.
“Whether or not oil prices can resume their march higher will depend on how quickly China’s crude demand bounces back this quarter,” said Stephen Brennock of oil broker PVM.
“In the meantime, attention is shifting to the state of U.S. oil inventories.”
Brent crude was down 1 cent to $86.12 a barrel by 1023 GMT after declining 2.3% in the previous session. West Texas Intermediate (WTI) U.S. crude slipped 16 cents, or 0.2%, to $79.97, after a 1.8% drop on Tuesday.
Weighing on prices was a report on Tuesday that U.S. crude stocks rose by about 3.4 million barrels in the week ended Jan. 20, according to market sources citing American Petroleum Institute figures.
Official inventory data from the U.S. Energy Information Administration is out at 1530 GMT.
Also weighing on oil were concerns about an economic slowdown. U.S. business activity contracted in January for the seventh straight month, figures showed on Tuesday.
Elsewhere on the supply side, volume should remain steady from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+.
An OPEC+ panel is likely to endorse the group’s current policy at a Feb. 1 meeting, five OPEC+ sources said on Tuesday. OPEC+ in October decided to trim output by 2 million barrels per day from November through 2023 on a weaker economic outlook.
U.S. Oil Refining Margins Hit 3-Month High as Plant Outages Rise
U.S. oil refining margins on Tuesday hit a three-month high and are likely headed higher, analysts said, as unplanned refinery outages weigh on already-tight fuel supplies.
The outages have pushed up gasoline prices in Texas and Oklahoma this year ahead of what is expected to be a heavier than usual turnaround season for refineries. The rising prices and margins are unusual for this time of year, when travel falls.
The crack spread, a key gauge of refiner profits that measures the difference between crude oil prices and selling prices of finished products, touched $42.41 on Tuesday, the highest since October. The five-year January average is $15.56, an analysis of Refinitiv Eikon data showed.
Average gasoline prices in Texas hit about $3.07 a gallon on Tuesday, up almost 44 cents from a month ago, according to the AAA motor group. Motorists in Oklahoma also are paying about 45 cents more, at $3.13 a gallon, AAA data showed.
A diesel producing unit at PBF Energy’s (PBF.N) Chalmette, Louisiana, refinery was shut following a fire on Saturday. It could be out for at least a month. Exxon Mobil (XOM.N) said Monday it will perform planned maintenance on several units at its Baytown, Texas, petrochemical complex.
The ongoing refinery maintenance season could be much lengthier than usual, with many U.S. Gulf Coast refineries still running below capacity after Winter Storm Elliott knocked out some 1.5 million barrels per day of refining capacity in December. A Suncor refinery in Commerce City, Colorado, has remained offline since the storm.
A lot of overhauls were also delayed by the pandemic, and refiners are now planning twice as many overhauls this spring than usual, putting more pressure on fuel supplies.
Fuel inventories are low relative to historical levels, “so there is little margin for error,” said Rob Thummel, portfolio manager at Tortoise. U.S. gasoline inventories are at about 10% below normal and diesel around 20% below normal.
A coming ban on Russian seaborne fuel cargoes will place new calls on U.S. refined products, said Ole Hansen, head of commodity strategy at Saxo Bank.
“Supply of diesel to Europe from the U.S. and the emerging refinery hub in the Middle East may make up some of the missing barrels from Russia, but a shortfall seems likely,” Hansen said.
