Oil prices move higher as EIA reports a 500,000-barrel weekly rise in U.S. supplies

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Myra P. Saefong

William Watts

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EIA reports a 5th straight weekly rise in U.S. crude supplies.

 JOHANNES EISELE/AGENCE FRANCE-PRESSE/GETTY IMAGES

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Oil futures headed higher on Wednesday, looking to recoup some losses from a day earlier sparked by concerns over the economic outlook, even after the Energy Information Administration reported a a 500,000-barrel weekly rise in U.S. crude inventories.

The size of the increase in domestic crude supplies defied some market expectations for a decline, but was also less than the climb reported by a trade group late Tuesday.

Price action

• West Texas Intermediate crude for March delivery CL.1, 1.16% CL00, 1.19% CLH23, 1.16% rose 60 cents, or nearly 0.8%, to $80.73 a barrel on the New York Mercantile Exchange. It was trading at $79.93 shortly before the EIA released its supply report.
• March Brent crude BRNH23, 0.78%, the global benchmark, was up 26 cents, or 0.3%, at $86.39 a barrel on ICE Futures Europe. April Brent BRN00, 0.78% BRNJ23, 0.75%, the most actively traded contract, gained 29 cents, or 0.3%, to $86.54 a barrel.
• Back on Nymex, February gasoline RBG23, -0.83% traded at $2.6346 a gallon, down 0.5%, while February heating oil HOG23, -1.02% lost 1.4% to $3.3774 a gallon.
• February natural gas NGG23, -4.30% fell 2.9% to $3.165 per million British thermal units.

Supply data

The increase in U.S. crude supplies for the week ended Jan. 20 marked the fifth weekly increase reported by the EIA. On average, analysts forecasted a decline of 2.4 million barrels, according to a poll conducted by S&P Global Commodity Insights.

Industry trade group the American Petroleum Institute late Tuesday, however, reported that U.S. crude inventories rose by 3.38 million barrels last week, according to a source citing the data.

“The fact that the EIA reported a considerably smaller crude build than the API is “likely the only reason oil is rallying…as the rest of the weekly EIA release favored the bears,” Tyler Richey, co-editor of Sevens Report Research, told MarketWatch.

Overall, the EIA data was “net bearish, but traders are defending technical support near last week’s lows as the latest fundamental data is assessed by the market,” he said. “Simmering recession worries and fading hopes of a soft landing will remain headwinds for the market. However, ongoing optimism for sharply rising demand out of China will continue to support prices in the near term.”

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The EIA report also showed a weekly inventory increase of 1.8 million barrels for gasoline, while distillate stockpiles fell by 500,000 barrels. The S&P Global Commodity Insights survey of analysts had called for supply declines of 100,000 barrels for gasoline and 1.6 million barrels for distillates.

Crude stocks at the Cushing, Okla., Nymex delivery hub rose by 4.3 million barrels for the week, the EIA said. Total domestic petroleum production was unchanged at 12.2 million barrels per day, EIA data showed, and oil stocks in the Strategic Petroleum Reserve were also untouched from the week before — at 371.6 million barrels.

Other market drivers

On Tuesday, the most actively traded WTI and Brent contracts pulled back by nearly 2%, with weakness seen as data indicated a contraction in private-sector U.S. activity in January.

Optimism over China demand, however, has underpinned crude as the country lifts COVID-19 restrictions.

Oil prices settled Monday at their highest since November, finding support on “hopes that China demand is improving plus the country’s purchases of oil reserves. However, while there are no official statistical reports on how much China buys for strategic purposes, the markets guess is that China will be adding huge amount’s this year,” said Peter Cardillo, chief market economist at Spartan Capital, noting that the International Energy Agency expects China to lift global oil demand to a record 101.7 million barrels a day in 2023.

“On the other hand, we still believe the cooling of the global economy will serve as a buffer to improving China’s thirst for oil this year,” he said in a note. “Therefore, we maintain our near-term bearish outlook with prices backtracking to the mid-$70 range.”