Crude Oil Market Concern Heightens As Price Fall on Inventory Decline

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According to a Platts report, crude oil futures fell during midmorning trade in Asia Feb. 24 after data from the American Petroleum Institute showed an unexpected build in US crude inventories, and as fears of an overbought market stemmed further buying activity.

  • At 11:07 am Singapore time (0311 GMT), the ICE April Brent futures contract was down 43 cents/b (0.52%) from the Feb. 23 settle at $64.94/b while the NYMEX April light sweet crude contract fell 56 cents/b (0.91%) at $61.11/b.
  • Data from the API released late Feb. 23 showed a 1 million barrel increase in US crude inventories in the week ended Feb. 19.

Market Expected Decline in Inventory

 The build surprised the market, which was expecting inventories to decline significantly on account of severe weather in southern US states shuttering production.

“With excessively stretched positioning [that is] highly susceptible to any negative news, WTI dropped towards the $61 level after the API stockpiles jumped [up by] 1.026 million barrels versus the previous draw of 5.8 million barrels,” said Stephen Innes, chief global market strategist at Axi, in a Feb. 24 note.

  • The API data showed better fundamentals in the downstream market, with a marginal 66,000 barrel increase in US gasoline inventories and a 4.5 million barrel decrease in distillate inventories.
  • At 11:07 am, the NYMEX March RBOB contract was trading 0.66 cents/gal (0.36%) lower than the Feb. 23 settle at $1.8520/gal and the NYMEX March ULSD contract was down 1.06 cents/gal (0.57%) at $1.8574/gal.

Market Awaiting Comprehensive Inventory Data

Market participants will now be looking toward more comprehensive inventory data from the US Energy Information Administration, scheduled to be released later on Feb. 24.

The downward price action was also in part caused by growing concerns the oil market may have been overheated, with ANZ analysts in a Feb. 24 note saying that there were “technical signals showing the market looks overbought.”

Prices To Correct

As prices soared following the recent supply disruption in the US, analysts have said prices may correct as the market tries to find a new balancing point.

Fundamentals in the market remain favorable, as the abatement of the pandemic and a global vaccine rollout prelude increased economic activity and higher energy demand.

Banks Raise Oil Price Forecasts 

“Several banks have raised their [oil price] forecasts in response to the recent commodity strength, with long-term fundamentals suggesting post-US stimulus prices [to be] within the range of $60-80/b,” said Innes.

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Source: S&P Global

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