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Bullish crude draw offset by returning crude volumes, vaccine delays


Commercial crude draw of 7.3 million barrels exceeds expectations

Weekly crude exports hit 11-month high

Lost crude production, refining activity should rebound quickly from freeze

  • Author
  • Jordan Blum
  • Editor
  • James Bambino
  • Commodity
  • Oil
  • Topic
  • Coronavirus And Commodities

Crude oil prices dipped on Feb. 18 as a bullish draw in commercial crude oil inventories and a spike a US oil exports were offset by returning domestic production volumes and coronavirus vaccine rollout delays triggered by the long freeze in Texas and neighboring states.

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After briefly bouncing following the release of the US Energy Information Administration's weekly inventories report, front-month NYMEX WTI fell 62 cents to settle at $60.52/b, while ICE front-month Brent settled 41 cents lower at $63.93/b.

In refined products, NYMEX front-month RBOB fell 1.62 cents to settle at $1.7943/gal, while NYMEX ULSD fell 13 points to settle at $1.8364/gal.

RELATED: Texas refinery outages mount as cold freeze continues

ANALYSIS: Global crude supplies set for quality shift as OPEC+ unwinds pandemic cuts

The bullish inventory data is from the week that ended Feb. 12, so it does not account for the big loss of production and refining capacity from the Texas freeze that took hold on Feb. 15 and continued to wreak some havoc on Feb. 18. However, oil production volumes are returning more quickly than refining activity, contributing to a dent in oil pricing.

Anthony Fauci, President Biden's chief medical adviser, said Dec. 18 that the COVID-19 vaccine rollout has slowed to a "grinding halt" in some places from the ongoing winter storms.

There is some renewed market bearishness from concerns that oil demand will not really return to pre-pandemic normalcy until the end of 2021, and not this summer, said Edward Moya, senior market analyst for OANDA.

"The crude demand outlook is now dealing with short-term vaccine distribution problems due to the deep freeze, weakened vaccine protection due to mutations, and the likelihood it will be several months until a better vaccine can be created," Moya said.

According to S&P Global Platts Analytics, roughly 3.3 million b/d of US crude production was offline Feb. 18, down from a peak of 3.8 million b/d the prior two days, primarily from the Permian Basin, Eagle Ford Shale and Oklahoma. Platts Analytics expects the bulk of lost output to return through the weekend, with roughly 200,000 b/d offline by Feb. 22.

Roughly 4.4 million b/d of refining capacity was confirmed down Feb. 18, and another 1.5 million b/d of capacity impacted, according to Platts Analytics.

However, power is returning to Texas, with just over 400,000 outages reported by in US afternoon trading, down from around 2.8 million late Feb. 17.

Bullish EIA data

A bullish 7.3 million barrel crude draw in EIA data exceeded the American Petroleum Institute's tally of a 5.8 million barrel draw. EIA data pegged US stocks at 461.8 million barrels last week.

US crude stocks have fallen 42 million barrels since early December as refinery runs increased. Inventories are now on par with the five-year average, down from an 11% surplus the week ended Dec. 4. US crude production fell from 11 million b/d down to 10.8 million b/d for the week that ended Feb. 12 as more shale volumes fell offline.

The large draw in crude stocks was boosted in part by US crude exports spiking from 2.62 million b/d the prior week up to 3.86 million b/d for the week that ended Feb. 12. That represents the most active week for crude exports since March 13 when the pandemic's impacts were just beginning to take hold.

US gasoline inventories rose by about 700,000 barrels, but distillate stocks dipped by 3.4 million barrels.

Combined low and ultra-low sulfur diesel stocks on the US Atlantic Coast have fallen roughly 8 million barrels since the week that ended Jan. 8 to 51.3 million barrels, tightening the surplus to the five-year average to 11% from 23%, the EIA data showed.

Kpler vessel tracking software shows US gasoline imports rising to 5.69 million barrels the week beginning Feb. 22 and 5.21 million barrels the following week, from just 3.4 million barrels the first week of April. The bulk of those barrels are arriving on the US Atlantic Coast, home of the New York delivery point for NYMEX RBOB and ULSD futures.

Kpler data is also showing a rise in diesel imports, although not to the same degree as gasoline.

The EIA said that -- before the freeze -- refining activity had risen to 83.1% of their operable capacity for the week that ended Feb. 12, including gasoline production rising to an average of 9.0 million b/d.

John Kilduff, a partner at Again Capital, said the data is promising for oil and fuel demand returning, even though gasoline inventories have continued to rise with headwinds from the remaining supplies of winter-grade gasoline. Despite stops and starts, the vaccine rollout is still working and a lot of progress is being made, he said.

"It should still be a banner driving season this summer," Kilduff said, even if demand is not fully back to pre-pandemic levels. "It's the first sign of a potential return to normal demand, although we have a ways to go."

The next big thing to watch is whether Saudi Arabia might soon reverse its oil production cuts.

OPEC and its allies are set to meet March 4 to decide on quotas for April and perhaps beyond.

If OPEC+ decides to reduce its output cuts to 5.8 million b/d -- the level they initially agreed to -- it would mean an addition of slightly over 2.2 million b/d to the market. However, analysts believe this to be unlikely.