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Futures Movers: Oil prices end lower as U.S. supply climbs a 4th week and after IEA deems supercycle unlikely

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Oil futures ended with a loss on Wednesday, after the U.S. government reported a fourth consecutive weekly climb in domestic crude inventories and International Energy Agency deemed a “supercycle,” or sustained rise in prices for the commodity, unlikely in its latest forecast.

The Energy Information Administration reported Wednesday that U.S. crude inventories rose by 2.4 million barrels for the week ended March 12. The followed increases reported by the agency in each of the previous three weeks.

On average, analysts polled by S&P Global Plats forecast a climb of 400,000 barrels for crude stocks. The American Petroleum Institute on Tuesday reported a weekly decline of about 1 million barrels.

“As refining activity on the Gulf Coast — the refinery hub of the U.S. — continues to rebound after last month’s winter storm in Texas, the U.S. moves close to being in balance again with a modest build to oil inventories last week,” said Matt Smith, director of commodity research at ClipperData.

“Over three-quarters of last week’s 1.1 million barrel-per-day increase in refinery runs occurred on the Gulf Coast,” he said in emailed commentary. “Another rise in refining activity in next week’s report should usher us back to a trend of inventory draws.”

West Texas Intermediate crude for April delivery
CL.1,
-0.32%

CLJ21,
-0.32%

fell 20 cents, or 0.3%, to settle at $64.60 a barrel on the New York Mercantile Exchange. May Brent crude
BRN00,

BRNK21,

lost 39 cents, or 0.6%, at $68 a barrel on ICE Futures Europe.

“As long as demand continues to climb…the weather-related issues in the U.S. energy industry are resolved, and there are no policy surprises from OPEC+ participants, then the backdrop of the energy market continues to favor the bulls,” said Tyler Richey, co-editor at Sevens Report Research.

However, “it should not come as a surprise if there is a modest pullback across the space” that sees U.S. prices fall back towards $60 in the coming sessions “as speculative longs book profits and recent gains are digested,” he told MarketWatch.

The EIA data also showed crude stocks at the Cushing, Okla., storage hub fell by 600,000 barrels for the week, while total U.S. oil production was unchanged at 10.9 million barrels a day.

Gasoline supply was up by 500,000 barrels, while distillate stockpiles inched higher by 300,000 barrels for the week, the EIA reported. The S&P Global Platts survey had forecast supply declines of 1.4 million barrels for gasoline and 900,000 barrels for distillate inventories.

On Nymex, April gasoline
RBJ21,
-2.66%

lost 2.6% to $2.05 a gallon and April heating oil
HOJ21,
-1.57%

shed 1.4% to $1.91 a gallon.

Natural-gas futures also declined, ahead of Thursday’s EIA update on supplies of the fuel. April natural gas
NGJ21,
-1.52%

settled at $2.53 per million British thermal units, down 1.3%.

Meanwhile, the IEA bolstered its forecast for 2021 oil demand growth by 100,000 barrels a day, while cutting its outlook for U.S. supply.

However, despite extended and deepened production cuts by the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, and forecasts for supply shortfalls in some parts of the market, “oil inventories still look ample compared with historical levels despite a steady decline from a massive overhang that piled up during the second quarter of 2020,” the Paris-based organization said in its monthly report.

In a separate report on the medium term outlook, the IEA said the forecast for global oil demand has shifted lower, and could peak earlier than previously thought if an increased focus on clean-energy initiatives by governments translate into stronger policies and behavioral changes resulting from the pandemic become ingrained.

Oil prices declined following the report “as traders believe that oil price this high is going to destabilize the supply,” by inviting a pickup in crude output, said Naeem Aslam, chief market analyst at AvaTrade.

Still, Cailin Birch, global economist at The Economist Intelligence Unit, believes that the OPEC+ decision to keep current supply levels on hold in April “suggests that Saudi Arabia…has been able to fend off internal pressure to start increasing output, at least for now.”

U.S. shale oil producers have also “signaled in recent weeks that they do not intend to ramp up production,” she said in emailed commentary, noting that recent presentations by U.S. oil majors to shareholders suggest investors are still “pressuring companies to focus on maintaining profitability, rather than expanding production.”

Against that backdrop, Birch said The Economic Intelligence Unit has raised its full-year forecast for Brent crude to $68 this year and $71 next year, from $57 and $59, respectively.

Even so, the current wave of investor optimism around the COVID-19 vaccine rollout and expected economic recovery is “somewhat exaggerated,” she said, so “we expect overall crude consumption to be about 7% lower than pre-coronavirus levels in Q1 and 4% lower in the full-year 2021.” 

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