International oil prices stood at an 11-month high on Wednesday, Jan. 6, despite a sharp increase in official U.S. statistics of petroleum products inventories last week.
Data released by the U.S. Energy Information Administration EIA showed that EIA commercial crude oil inventories plunged by 8.01 million barrels in the week ended Jan. 1, the largest one-week drop since August 2020, compared with market expectations for a 2.7 million barrel decrease and the previous value of a 6.065 million barrel decrease.
However, inventories in Cushing, the main delivery site for U.S. oil futures, increased by 792,000 barrels for the week, far exceeding the previous increase of 27,000 barrels; gasoline stocks increased by 4.519 million barrels, the largest increase since April 2020, compared with expectations for a decrease of 900,000 barrels; refined oil stocks, including diesel and heating oil, increased by 6.39 million barrels, the largest increase since May 2020, compared with expectations for an increase of 1.2 million barrels.
Last week’s EIA refinery equipment utilization rate was up 1.3%, well ahead of expectations for a 0.4% increase. Demand from refineries helped drive a sharp decline in oil inventories, with U.S. refineries achieving 80.7% of capacity last week, the highest level since August 2020. But Bob Yawger, head of energy futures at Mizuho in New York, noted that weak demand for refined products could not keep refineries running at high rates.
After the release of the EIA government version of the weekly crude oil inventory report, international oil prices have been moving higher against the backdrop of a significant increase in market risk appetite.
U.S. oil WTI i.m. futures rose as high as $0.94 or 1.9% during the day to stabilize above the $50 mark, with a daily high of $50.87, the highest since mid-February 2020. Brent oil prices rose as high as $1.12 or up 2%, breaking through the $54 round figure, with a daily high of $54.72, the highest in 11 months.
According to another Bloomberg survey based on ship tracking data, information provided by informed officials, and estimates from several mainstream energy consultants, OPEC oil supply increased by 190,000 barrels per day in December 2020 to a total of 25.45 million barrels per day, with Libya increasing production to 1.2 million barrels per day after signing a ceasefire agreement, the highest since October 2018, with production increasing nearly 10-fold since September 2020.
This is the third consecutive monthly rise in OPEC output counted by the outlet. A Reuters survey came to a similar conclusion that OPEC oil production rose for the sixth consecutive month in December 2020 to a total of 25.59 million bpd, mainly due to a further pickup in Libyan output and a small increase in production by other oil producers in the organization.
Recent shipping data also showed that crude shipments from Saudi Arabia, Iraq and Kuwait were 700,000 bpd higher in December on a sequential basis, with OPEC members’ oil exports hitting a new high since the OPEC+ 9.7 million bpd production cut agreement came into effect in May 2020. The biggest increase was seen in Saudi Arabia, where oil shipments rose to the highest since April 2020, when the kingdom tried to increase production to engage in a price war with Russia.
However, the aforementioned data from a month ago hardly dampened the short-term rally in oil prices. Analysts believe that Saudi Arabia has released the strongest signal to the market to limit supply outside of yesterday’s surprise announcement that it voluntarily cut production by a significant 1 million barrels per day in February and left output unchanged in March to rebalance the oil market.
U.S. oil imports from Saudi Arabia plunged to zero last week for the first time in 35 years since September 1985, EIA data showed. The volume of Saudi oil exports to the U.S. is often seen as the quickest channel to send supply signals, as the weekly U.S. EIA oil report has a lot of influence on traders and the data is updated in a more timely manner. The length of time for Saudi oil to arrive in the U.S. is usually six weeks, representing little import volume in the coming weeks as well.
Saudi Arabia’s energy minister said publicly after Tuesday’s OPEC+ meeting that the country’s unilateral oil production cut for two months since February was “a great gift to the oil industry” and that “we have a responsibility to take care of the market and will take all necessary actions, do not question our determination. “
OPEC+ will increase overall production by 500,000 barrels per day in January this year, narrowing the size of the cut to 7.2 million barrels per day, or about 7 percent of global oil supply. In February and March, OPEC+ will substantially reduce the scale of production, as the vast majority of member states will produce at the same level as in January, Russia and Kazakhstan will jointly increase production by 75,000 barrels per day each month, while Saudi Arabia will cut production by 1 million barrels per day in February, and production in March will be the same as in February, remaining at 8.12 million barrels per day, thus boosting oil prices.
Goldman Sachs pointed out in its latest research report released on Wednesday that oil prices may not be able to sustain the rally in the short term, as the market believes that Saudi Arabia has sent a bearish signal that oil demand remains weak. However, oil demand will rebound in March as the weather turns warmer and new crown vaccinations increase, and there could be a shortage of 1.3 million barrels of oil per day from April to July, maintaining an optimistic estimate of a Brent target price of $65 per barrel by the end of 2021, significantly higher than the Wall Street consensus.
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