Oil prices extend rise after drop in U.S. crude output and supplies

Oil was building on gains scored the previous session after the Energy Information Administration reported on Wednesday a much larger than expected drop in U.S. crude inventories of 9.2 million barrels in the week ended Jan. 19.

The agency also reported U.S. crude output dropped back 1 million barrels a day, or mbd, to 12.3 mbd last week, pulling back from record output the previous week.

Oil production fell to a 6-month low, said Richey, due to freezing temperatures in the northern U.S.

Overseas, Ukrainian forces have ramped up attacks on Russian oil and gas infrastructure, “disrupting export operations [and] lowering available oil supply globally,” he said. In the Middle East, attacks on ships in the Red Sea by Houthi rebels backed by Iran, continue to “interfere with global shipping routes, including seaborn crude oil cargoes.”

The increasingly “backwardated nature of the oil futures market has offered a real-time read of the increasing concern about an emerging supply deficit in the global oil market,” said Richey. Backwardation means that oil prices in the spot market are higher than those for later deliveries.

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The EIA Wednesday also said gasoline inventories rose 4.9 million barrels and gasoline supplied, a measure of demand, dropped 388,000 barrels a day to 7.88 mbd in the latest week.

That’s a 1-year low and the 4-week moving average of gasoline supplied indicates “a meaningful drop off in demand in recent weeks,” said Richey. “The weak demand could be due to the adverse weather but it also may be due to prices creeping higher again a deterioration in the health of the consumer.”

Data released Thursday showed that the U.S. economy grew at a robust 3% annual pace in the fourth quarter. That was better than the 2.0% rate of growth forecast by economists polled by The Wall Street Journal.

For oil, this report shows that “U.S. growth is very positive despite [interest-rate] rate hikes, which is supportive of demand from the United States, said Jason Schenker, president and chief economist at Prestige Economics.

Natural-gas supplies

Natural-gas prices on Nymex on Thursday traded little changed even after the EIA reported that U.S. supplies of the commodity in storage dropped by 326 billion cubic feet for the week ended Jan. 19.

The weekly decline matched the average fall forecast by analysts polled by S&P Global Commodity Insights, which said the average withdrawal for the period over the past five years was 148 bcf, while the year-ago decline was at just 86 bcf.

“Thanks to production freeze-offs in the Permian Basin, the Midcontinent and the Haynesville, U.S. dry gas production dropped to just 88 [bcf per day] on Jan. 16 — down from a 30-day average at 105 bcf/d prior to the freeze,” S&P global Commodity Insights said in its survey, ahead of the supply data release.