Oil prices rose on Wednesday morning, despite a somewhat surprising EIA inventory report, which reflected a build in crude stocks and virtually unchanged gasoline inventories
Crude oil prices rose today after the Energy Information Administration reported a crude oil inventory build of 1.3 million barrels for the week to February 19. The build was much lower than the one the API had estimated a day earlier.
The report came a day after the American Petroleum Institute estimated an oil stock build of over 1 million barrels. It also compared with analyst expectations of a 5.372-million-barrel draw for the reported week and a 7.3-million-barrel inventory draw the EIA reported for the previous week.
Gasoline stocks surprisingly stayed virtually unchanged in the week to February 19, after a modest build of 700,000 barrels for the previous week, despite disruptions to refining operations by the Texas Freeze.
Gasoline production last week declined as a result of the Texas refinery shutdowns, to 7.7 million bpd. This compared with an average production rate of 9 million bpd during the previous week.
In distillates, the EIA reported an inventory decline of 5.0 million barrels for the week of the Texas Freeze. Middle distillate stocks remain above seasonal averages but are declining steadily, currently at 3 percent over the five-year average.
Distillate production averaged 3.6 million bpd last week, compared with 4.6 million bpd the week before.
Last week’s events in Texas will likely keep oil prices higher for some time as production restarts slowly, and some of it may not return at all as companies leave uneconomical, marginal wells idled, despite WTI prices of above $60 a barrel.
A growing bullish sentiment among banks and traders has also contributed to higher oil prices recently, especially after Goldman said it expected prices to hit $70 and top it by the summer. Recovering demand is driving this sentiment, and the production outages in the United States only served to strengthen it further.
At the time of writing, Brent crude was trading at $66.61 a barrel, with West Texas Intermediate at $62.76 a barrel.
By Irina Slav for Oilprice.com
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Therefore, how could one expect a build of 1.3 million barrels of crude oil in US oil inventories to arrest the rise of prices at a time when global inventories have seen a steep depletion from 1.4 bn barrels during the height of the pandemic to an estimated 100 million barrels now.
The impressive surge in crude oil prices since early December last year has given rise to speculation about supercycles defined by their relatively low frequency and long duration, once they begin. However, not every downturn in the business cycle becomes a depression. Similarly supercycles do not result from every upswing in commodity prices.
Supercycles of the past had usually emerged from the consumption rather than the production side of the market. Previous supercycles were driven by industrialisation and urbanisation similar to what has been happening in China since the early 2000s.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London