By Jeph Ajobaju, Chief Copy Editor
Oil prices suffered significant losses at mid-week trading in London, as traders go short on macros to reveal an unexpected build in United States crude inventories.
The surge in US oil inventories is attributable to the unprecedented cold snap that hit a key energy hub in the world’s largest economy last week thereby pausing fuel demand from refineries forced to close down.
Brent crude is down 0.60 per cent hovering around $64 per barrel (pb). However, both major oil benchmarks remained above the $60 price levels.
The most recent data from the American Petroleum Institute (API) show a surge of 1.026 million barrels for the week ending February 19. Oil experts had earlier anticipated a drop of 5.372 million barrels.
Stephen Innes, Chief Global Market Strategist at Axi in a note to Nairametrics spoke on prevailing market conditions weighing on the black hydrocarbon.
His words: “With excessively stretched positioning and highly susceptible to any negative news, WTI dropped towards the $61 level after the API stockpiles jumped +1.026 million barrels versus the previous draw of 5.8 million barrels during the period ended on February 19.
“Although the commodity prices dropped following the bearish stockpile data, bulls probably won’t be charging back to the pen enmasses as the smoldering embers around the Middle East powder keg threaten to ignite once again as the US-Iran conflict continues to simmer but at a higher heat level today.”
Still, Oil pundits expect more visibility on oil traders move at the end of next week with the next round of monthly OPEC+ meetings.
Outside of a rise in geopolitical risk, upside momentum could be limited in the coming days as oil traders wrestle with OPEC+ next move.
US losing four million barrels daily
The unusual winter storm playing in key areas of the world’s largest producer of oil saw an estimated four million barrels per day (mbpd) of oil output shut down in Texas and other states, alongside 21 billion cubic feet of natural gas output.
Oil traders are going bullish on the black liquid hydrocarbon, over the unprecedented cold snap in leading American energy hub, Texas.
Also giving crude oil bulls enough gas to stay at least above the $60 price level is the recent progress against the COVID-19 pandemic, in turn, raising hopes for energy demand recovery.
Recovery in global demand
Most recent data from the Energy Information Administration (EIA) show the US is currently the world’s largest producer of oil, pumping about 19.45 million bpd or 19 per cent of the world’s total crude production in 2019.
On February 22, Brent crude futures rallied 1.13 per cent to $62.84 pb with Brent crude contract turning over in February 21 to the May 21 contract.
Innes gave key insights to Nairametrics on other macros weighing on oil prices at least for the near term amid high positivity prevailing in global financial markets
“What began as a power issue for a handful of US states quickly turned into a global supply shock for the oil markets,” he said.
“Still, the re-start of shut-in US production and news that the Biden administration is exploring diplomatic re-engagement with Iran have contributed to a cooling of oil prices, despite the bullish inventory data.
“But ‘the day after’, see oil prices nudging higher amid ongoing evidence of recovery in global demand, mostly good news on the Covid-19 trends and anticipation of a nearly 2 trillion US stimulus designed to get people working again quickly.”
The sharp surge in crude oil prices before the all-important meeting of OPEC+ next month means the calculus for the OPEC+ alliance becomes more complicated.
However, as oil output stays constrained, crude oil stockpiles are dropping and with COVID-19 vaccines promising a return towards normalcy at the end of the day, expectations continue to run high for oil markets.