Oil Falls to 5-month Low on Supply Overhang, Demand Softness

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange accelerated a selloff into the afternoon session Wednesday following inventory data from the U.S. Energy Information Administration showing total refined product stockpiles climbed by a sizable 8 million bbl last week as domestic refineries emerge from fall maintenance while fuel demand is weak.

Wednesday's inventory report was mixed-to-bearish, showing a much larger-than-expected build in gasoline and distillate stockpiles despite a slower-than-usual return of refining utilization following a heavy turnaround season this fall.

Domestic refiners processed 16.2 million bpd of crude oil during the week-ended Dec. 1, which was 179,000 bpd more than the previous week's average but still 384,000 bpd below the 2022 processing rate. On the week, refiners raised run rates 0.7% to 90.5% of capacity compared to a 95.5% utilization rate during the same week a year ago.

EIA figures showed gasoline inventories jumped 5.4 million bbl in the reviewed week to 223.6 million bbl, some 1% below the seasonal five-year average. Analysts mostly expected a 700,000-bbl increase. Distillate stockpiles rose 1.3 million bbl from the previous week to 112 million bbl and are now 13% below the five-year average. Jet fuel stocks rose 1.3 million bbl.

Supporting elements in Wednesday's inventory report could be found in the crude complex where commercial stockpiles dropped by a much larger-than-expected 4.6 million bbl as oil producers scaled back output by 100,000 bpd from a record-high 13.2 million bpd. Oil stored at the Cushing tank farm in Oklahoma, the delivery point for the West Texas Intermediate contract on NYMEX, rose 1.8 million bbl to 29.6 million bbl.

Wednesday's move lower in the oil complex follows Saudi Arabia's announcement to cut official selling prices for its flagship Arab Light crude for all key markets in January, underscoring weak demand fundamentals globally.

Saudi Aramco sliced the price of Arab Light crude for January loadings to Asia by $0.50 bbl to $3.50 bbl over Platts Dubai/Oman average. Aramco further reduced official selling prices for Northwest Europe, down a sizable $2 bbl compared to December loadings against ICE Brent futures. U.S. Gulf Coast buyers saw a more modest reduction of $0.30 bbl to $7.15 bbl over Argus Sour Crude Index.

The price cuts follow another extension of Saudi voluntary production cuts of 1 million bpd into the first three months of next year. The announcement was made in conjunction with voluntary reductions of 1.2 million bpd from seven other participants of the 24-country OPEC+ alliance.

At settlement, NYMEX January WTI futures declined $2.96 to $69.38 per bbl, while Brent February dropped back $2.90 to $74.30 per bbl. NYMEX ULSD futures for January delivery fell $0.0649 to $2.5762 per gallon, while RBOB futures declined to $2.0302 per gallon, down $0.0801.

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

Liubov Georges