Oil prices steady as fall in global supply offsets rise in US stock
US crude inventories continue to climb, with output still at a record, but Opec cuts and the Venezuela crisis tighten the market
London — Oil steadied on Thursday as growing expectations that global supply could fall significantly short of demand this year lent support, offsetting the negative impact of a rise in US inventories.
Brent crude oil futures were last down 12c at $62.57 a barrel by 10.22am GMT, while US crude futures were down 7c at $53.94 a barrel. The oil price came under pressure earlier in the day following weekly data from the US Energy Information Administration (EIA) on Wednesday that showed an unwelcome increase in stocks of crude oil.
Still, some analysts were relieved that US crude oil inventories only rose by 1.3-million barrels in the week to February 1, according to the EIA, compared with expectations for an increase of 2.2-million barrels.
PVM Oil Associates strategist Tamas Varga pointed out that the rise in crude inventory masked a bullish decline in stocks of refined products.
“The weekly report from the EIA on US oil stocks was bullish for outright prices, plain and simple. The large draws in distillate ... made sure that commercial oil inventories fell for the second week, this time by 3.4-million barrels,” he said. “Additionally, the builds in crude (+1.3-million bbls) and petrol stocks (+0.5-million bbls) were less than anticipated.”
US distillate stocks fell by 2.3-million barrels, while inventories of other refined fuels dropped by 2.9-million barrels.
The oil price is still showing a 20% gain so far this year, but has struggled to return to the near-four year highs of late 2018, given the concern that a slowing global economy could eat into fuel demand, with German industrial output unexpectedly falling in December for the fourth consecutive month.
Yet some investors believe these concerns may be overblown, in light of the decline in oil cartel Opec production and a squeeze on supply from Iran and Venezuela due to US sanctions. Providing global markets with price support are supply cuts led by Opec aimed at tightening the market.
“We believe that financial markets may be overestimating the risks of a global recession. Moreover, lower oil prices — prices were between 14% and 18% lower in January than their 2018 average — are likely to stimulate economic activity and oil demand, particularly in emerging markets,” said Jean-Pierre Durante, head of applied research at Pictet Wealth Management.
Meanwhile, US sanctions against Venezuela’s oil industry are expected to freeze sales proceeds of Venezuelan crude exports to the US. ANZ bank said on Thursday, “About a third of Venezuela’s exports head to the US. As such, we expect Venezuelan exports to quickly fall by 300,000 barrels per day (bpd) to about 700,000 bpd.”