NYMEX Oil Futures Add to Gains Ahead of EIA Inventory Data

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange pushed higher early Thursday, with the U.S. crude benchmark topping $62 after industry data from the American Petroleum Institute showed a much-larger-than expected drop in U.S. crude and distillate stockpiles during the week ended Feb. 12, while Texas refiners and oil producers enter the sixth straight day of large-scale power outages, suggesting steeper inventory draws in the coming weeks.

The API data released late Wednesday showed U.S. commercial crude supplies tumbled 5.8 million barrels (bbl) during the reviewed week, more than double expectations for a 2 million bbl decline. If realized in Thursday's Energy Information Administration statistical report, the steep draw would press nationwide crude inventories to the lowest level since mid-March 2020, bringing them almost in line with the five-year average. The data also reported a much larger than expected drop in distillate supplies last week, down 3.5 million bbl versus the estimates for a drop of 1.6 million bbl.

Domestic distillate supplies have declined for three consecutive weeks through Feb. 5, and now stand about 7% above the five-year average. Gasoline inventories, however, posted another weekly build, up 3.9 million bbl, more than three times calls for a 1.2 million bbl gain. The gasoline build comes as a cold snap across the southcentral U.S. has undermined demand for motor fuels.

The Bank of America estimates the pace of total stock decline has been accelerating since the start of the year. The combined surplus of crude, gasoline and distillate has dropped from 140 million bbl at the end of June 2020, to just 36 million bbl currently. If there is evidence required that oil markets are rebalancing, the BOA analysts believe, this is it.

With more than 3 million barrels per day (bpd) of crude production currently offline in Texas, markets can reasonably expect steeper crude draws in coming week.

The closely watched inventory report from the EIA is scheduled for release at 11 a.m. ET Thursday, a day later than usual due to Monday's Presidents' Day.

In early trade, West Texas Intermediate futures for March delivery added 30 cents to near $61.47 bbl and the international crude benchmark Brent April contract advanced to $64.66 bbl. Both crude benchmarks added over 14% in value since the beginning of February. NYMEX March ULSD futures gained 1.44 cents to $1.8521 gallon and March RBOB futures moved up 1.14 cents to $1.8219 gallon.

Traders continue to monitor the unfolding emergency across much of the southcentral U.S., with more than one-fifth of the nation's refining capacity estimated to have been knocked offline due to the lack of power and subfreezing temperatures. Wells in the prolific Permian Basin produce a lot of water, so production streams can easily freeze at the surface under subzero temperatures. Additionally, power outages across Texas have left oil pumps and auxiliary facilities without electricity for days, while icy roads undermine supply chains and limit the accessibility to repair equipment.

On Wednesday, Saudi Arabia indicated the end to its unilateral production cut of 1 million bpd on March 31, while Organization of the Petroleum Exporting Countries are likely to maintain the current production agreement, limiting output by 7.125 million bpd this month and 7.05 million bpd during March. While the report citing Saudi's top energy official is clearly intended to remind the market that the OPEC+ coalition stands to raise production in coming months, it hasn't stalled February's price rally.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges