Crude oil futures enjoyed modest gains on Thursday after a two-session market rout. Oil prices were hammered on growing recession fears and warmer-than-usual weather. But market analysts say that the selloff was overdone and now energy traders could be taking advantage of the latest industry news. Could US crude return above $75?
February West Texas Intermediate (WTI) crude oil futures advanced $0.91, or 1.25%, to $73.75 per barrel at 19:52 GMT on Thursday on the New York Mercantile Exchange. It has been a rough start to the new year, plunging more than 8%.
Brent, the international benchmark for oil prices, remained relatively flat. March Brent crude futures rose $0.08, or 0.1%, to $78.77 a barrel. Brent has also struggled to kick off 2023, falling below $77 at one point.
According to the US Energy Information Administration (EIA), domestic inventories of crude oil increased by 1.694 million barrels for the week ending Dec. 30. This topped the market estimate of 1.54 million barrels and was higher than the previous week’s build of 718,000 barrels.
Gasoline inventories fell by 346,000 barrels, heating oil inventories decreased by 476,000 barrels, and distillate supplies slumped by 1.427 million barrels.
The main contributor to oil’s gain was Colonial Pipeline suspending operations following a leak. The pipeline operator had to halt its Line 3 pipeline for unscheduled maintenance. Operations could resume on Saturday, “but the unexpected disruption helped oil prices,” according to Edward Moya, the senior market analyst at OANDA.
For now, the global energy sector is well supplied, says Warren Patterson and Ewa Manthey, commodities strategists at ING. But the second quarter could show tightness.
“Chinese COVID infections are a concern for demand in the immediate term, however, the medium to long-term outlook is more constructive following the change in China’s COVID policy,” they wrote. “The oil market is looking better supplied in the near term and risks are likely skewed to the downside. However, our oil balance starts to show a tightening in the market from the second quarter through to the end of the year, which suggests that we should see stronger prices from 2Q23 onwards.”
This sentiment was echoed by Phill Flynn, an energy strategist and author of The Energy Report, who opined that “the big picture for fossil fuels looks very bullish. The lack of investment in fossil fuels is a major long-term issue even as we see this massive sell-off to start the New Year.”
In other energy commodities, February natural gas futures tanked $0.317, or 8.39%, to $3.463 per million British thermal units (Btu). February gasoline futures edged up $0.0053, or 0.23%, to $2.2645 a gallon. February heating oil futures were flat at $2.973 per gallon.