Wednesday, January 26

Oil falls from 7-year high as report notes rising stocks

Oil fell from the highest level in seven years after an industry report pointed to another surge in US crude reserves.

Futures in New York traded below $ 83 a barrel after rising more than 3% during the last four sessions. The American Petroleum Institute reported that crude inventories rose by 3.29 million barrels last week, according to people familiar with the figures. That would be a fourth weekly expansion if official government data confirms it later on Wednesday.

At least one technical indicator also indicates that oil should retreat. West Texas Intermediate’s 14-day Relative Strength Index is above 70, a level that indicates crude is overbought.

Oil has recovered to the highest level since 2014, as an energy crisis coincided with a rebound in demand from economies recovering from the pandemic. Russia is signaling that it will not do its best to offer Europe additional natural gas to alleviate the current crisis unless it obtains regulatory approval to begin shipments through the controversial Nord Stream 2 gas pipeline.

China’s National Energy Administration held a meeting with oil refinery executives on Tuesday to discuss the country’s crude imports amid rising prices, according to people with knowledge of the matter. The talks were meant to facilitate an exchange of views and help regulators stay on top of market developments, they said, adding that it ended without any political decisions.

“A gas market spill continues to move the oil market more than its fundamentals,” said Suvro Sarkar, energy analyst at DBS Bank. Oil prices are likely to remain strong amid tight supplies through the winter, he added.

  • WTI for November delivery, due Wednesday, fell 0.4% to $ 82.61 a barrel on the New York Mercantile Exchange after rising 0.6% on Tuesday.
    • The most active December contract lost 0.6% to $ 81.97 as of 12:05 pm in Singapore.
  • Brent for December settlement slid 0.5% to $ 84.63 on the ICE Futures Europe exchange after rising 0.9% in the previous session to close at the highest level since October 2018.
  • The timing for Brent was 73 cents in backwardation, compared with 75 cents at the beginning of the month.

In exchange for increasing the supply of natural gas, Russia wants to get approval from Germany and the European Union to start using Nord Stream 2, according to people close to state-owned Gazprom and the Kremlin. As if to underline the point, the pipeline operator said Monday that its first line is filled with so-called technical gas and ready to start operating, although it cannot ship it until approval is granted.

US reserves of gasoline and distillates, a category that includes diesel, declined last week, API said. A median estimate from a Bloomberg survey predicts that the Energy Information Administration will report that nationwide crude inventories increased by 2 million barrels.

Other market news:
  • Singapore is resorting to a series of “extraordinary” measures to bolster critical energy supplies as global gas shortages disrupt energy markets and drive prices to record levels.
  • Petrobras’ slowness to raise gasoline and diesel prices, even as international prices are rising, is leading distributors to avoid imports and hoard cheaper domestic fuel.
  • China’s independent refineries are prepared for the crude buying frenzy as they seek to use import quotas before they expire in less than three months.

© 2021 Bloomberg

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