Oil Traders Reverse Course As U.S. Stock Draw Rekindles Supply Concerns

by Ship & Bunker News Team
Wednesday January 24, 2024

Proving yet again that crude trading overall remains rudderless and range bound, investors on Wednesday reversed course for the third straight day of trading and caused prices to rise by about 1 percent after responding to a bigger than expected U.S. stock draw.

They were also motivated by weather-induced output slowdowns, China's proposed economic stimulus, and ongoing geopolitical tensions.

Brent settled up 49 cents, or 0.6 percent, at $80.04 per barrel, while West Texas Intermediate settled up 72 cents, or 1 percent, at $75.09.

The Energy Information Administration reported a massive 9.2 million barrels decline last week, far eclipsing analytical expectations for a 2.2 million draw; and in North Dakota, officials said it could take a month for oil output to fully recover after last week's winter weather halved production.

Still, production in that state is recovering, from a loss of as much as 700,000 barrels per day (bpd) to a loss of 170,000-220,000 bpd on Wednesday.

Meanwhile in China, the central bank vowed to cut the amount of cash banks must hold as reserves from February 5 in order to shore up that country's economic recovery; this came on the heels of China reportedly considering a $278 billion rescue package to boost its stock market, again for the purposes of economic stimulation.

Still, as in the previous session when investors caused a dip in oil prices, the news doesn't seem to be affecting trading to any great degree one way or another: Craig Erlam, senior market analyst at Oanda, said, "Geopolitical risk and the threat of delays and disruption are causing some alarm but that's not being particularly reflected in the price at this stage."

The U.S. drawdowns didn't impress Matt Sallee, a portfolio manager at Tortoise: he pointed out that markets need to see sustained drawdowns globally as well as "product draws to go along with the crude draws" in order for crude to remain above the key resistance band.

For its part, Gunvor Group Ltd. predicted that the first half of 2024 would be dominated by output growth from sources other than the Organization of the Petroleum Exporting Countries (OPEC) and will eventually level off, in turn causing markets to remain stagnant.

But it fell upon Vikas Dwivedi, an oil and gas strategist at Macquarie, to deliver Wednesday's most dramatic assessment of the oil market: he said, "Without current geopolitical tensions, we believe crude would sell off meaningfully."