Oil at Fresh Highs Ahead of US Inventory

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange moved higher in early trade Wednesday, continuing Tuesday's rally on expectations for U.S. crude oil inventories to have declined for a sixth consecutive week through Jan. 7 and for global oil supply availability to tighten amid underproduction from several OPEC+ members.

Meanwhile, risk-on trade in U.S. equity markets following testimony from Federal Reserve Chairman Jerome Powell before a Senate Banking Committee on Tuesday where he reassured lawmakers the economy no longer requires aggressive stimulus measures lent additional support for the oil complex.

All eyes will be on U.S. consumer price index to be released by the Labor Department at 8:30 a.m. ET, with consensus calling for inflation to have climbed above 7% from November's 40-year high in the 12 months ending in December. The core inflation, which excludes volatile food and energy prices, is expected to show a 5.4% increase year-on-year.

Economists estimate December's inflation print should mark the peak of price increases in the United States, with the trend seen reversing in the first quarter. Supporting this narrative, China's consumer and producer prices eased last month. However, those forecasts might turn out wrong as many were predicting inflation would have peaked around May last year when it hit 5% only to continue to rise.

Manufacturing production is still rattled by component and material shortages, while global supply chain is restrained by pandemic restrictions and scarce labor force. Still, Powell told lawmakers during his Senate hearing Tuesday that he believes the central bank would be able to tame inflation without hindering the economy. He did not, however, suggest a more hawkish response to recent price increases, noting only that the central bank would be "humble but a bit nimble" in executing rate hikes this year.

Powell's tone provided a boost to stocks on Tuesday, while pressing the U.S. dollar index to a 95.535 six-week low against its global peers that helped lift oil prices to their highest levels since the Omicron variant was first detected in late November.

Also on Wednesday, oil traders will parse through U.S. inventory report to be released by the Energy Information Administration at 10:30 a.m. ET, with expectations for commercial crude oil stockpiles to have declined for the sixth consecutive week. The American Petroleum Institute reported on Tuesday oil supplies declined 1.077 million barrels (bbl) during the week ended Jan. 7, below calls for draw of 2.1 million bbl. The report shows stocks at the Cushing, Oklahoma hub posted a drop of 3.659 million bbl.

Gasoline stockpiles spiked 10.86 million bbl in the week profiled, more than five times estimates for a 2.3 million bbl build, said API. API data also showed distillate inventories rose 3.035 million bbl, above calls for an increase of 1.2 million bbl.

DTN Refined Fuels Demand data showed that gasoline lifted at terminals across the United States increased just 0.7% from the previous week last week, bringing the seven-day moving average to just 4% above the January 2021 level. That marked a sharp decline from 15% above the year-ago level in late December. Weak demand data comes amid record number of COVID-19 hospitalization in the United States that are pushing several states toward emergency staffing as they struggle to cope. More than 145,900 people were in U.S. hospitals with COVID-19 as of Tuesday -- a number that surpasses the previous peak from mid-January 2021 and is almost twice what it was two weeks ago, according to data from the Department of Health and Human Services.

Internationally, Kuwait has become the latest National Oil Company to cut its February crude official selling price for Asian refiners, following a similar move from Saudi Arabia last week. The state-owned Kuwait Petroleum Corp reduced the February price of its flagship Kuwait Export Crude to DME Oman/Platts Dubai to $1.80 bbl for Asian customers.

That compares with $2.80 bbl for January-loading barrels. Last week, Saudi Aramco cut its OSPs for February-loaded crude oil for Asia, broadly in line with market expectations following narrower market backwardation last month.

Near 7:30 a.m. ET, front-month West Texas Intermediate futures gained $0.36 to $81.59 bbl, while ICE Brent crude for March delivery edged $0.24 higher to $83.93 bbl. NYMEX February RBOB futures traded near $2.3594 gallon, and the front-month ULSD contract advanced 1.81 cents to $2.5817 gallon.

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

Liubov Georges