Tight market, oil up
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Massive US crude inventory draw vs debt ceiling impasse risk-off mood
Alaska North Slope crude jumped 95 cents May 24 to close at $77.82 per barrel, as West Texas Intermediate leapt $1.43 to close at $74.34 and Brent leapt $1.52 to close at $78.36.
Prices reacted accordingly on the 24th as U.S. Energy Information Administration data confirmed a large draw on U.S. commercial crude reserves that was called a day prior by the API.
Commercial inventories for the week ending May 19 - excluding the Strategic Petroleum Reserve - plummeted 12.5 million barrels from the previous week to 455.2 million barrels - 3% below the five-year average for the season, the EIA said. The mammoth draw was a surprise; analysts had expected an increase of 800,000 barrels for the week.
Total motor gasoline inventories fell 2.1 million barrels for the week, ending 8% below the five-year average for the time of year.
The SPR also fell, ending at 358.0 million barrels May 19 versus 359.6 million barrels May 12. The nation's emergency crude cache stood at 532.0 million barrels on May 20, 2022.
The May 24 gains capped a three-day rally sparked by a warning to short sellers early in the week by Saudi Arabian Energy Minister Prince Abdulaziz bin Salman to "watch out."
The warning led to speculation that the Organization of the Petroleum Exporting Countries and allied exporting nations may be eyeing another output cut ahead of the 49th Meeting of the Joint Ministerial Monitoring Committee scheduled for June 4.
ANS leapt $1.27 May 23 to close at $76.87, while WTI jumped 92 cents to close at $72.91 and Brent jumped 85 cents to close at $76.84.
ANS rose 46 cents May 22 to close at $75.60, as WTI rose 44 cents to close at $71.99 and Brent rose 41 cents to close at $75.99.
Debt ceiling woes spark risk-off stanceOn Friday May 19, however, prices fell as traders fretted that President Biden and U.S. House Republicans had paused talks on raising the federal government's $31.4 trillion debt ceiling.
Biden left the talks and jetted to Hiroshima, Japan, for a G7 economic summit, pushing a potential agreement into the future.
According to the Treasury Department, the government could be unable to pay all its bills as early as June 1 if a pact is not reached.
ANS cratered May 19, sliding $1.99 to close at $75.14. WTI and Brent fell also, albeit less abruptly, with the former off 31 cents to close at $71.55 and the latter off 28 cents to close at $75.58.
Biden, asked about the debt ceiling at a press conference in Japan said, "This goes in stages, I've been in these negotiations before," according to a May 20 Fox News account.
"I still believe we'll be able to avoid a default and we'll get something decent done," Biden said.
Remarks May 19 from Federal Reserve chair Jerome H. Powell threw additional cold water on risk sentiment.
Powell said that inflation continued "far above" the central bank's target but that no decisions had been made to raise rates at the Fed's June meeting.
"The data continues to support the committee's view that bringing inflation down will take some time," he said.
The Fed remarks along with debt ceiling woes took U.S. equity prices, Treasury yields and the dollar lower.
May 18 was an off day for oil as well. ANS fell 82 cents to close at $77.13, WTI dropped 97 cents to close at $71.86 and Brent slid $1.10 to close at $75.86.
Oil was up on May 17 however, and ANS neared the $78 mark but missed after a leap of $2.16 to close at $77.95. WTI jumped $1.97 on the day to close at $72.83 and Brent rode a gain of $2.05 to close at $76.96.
Data coming out of China cast some hope into the mix of sentiment for the week, showing that the country's April oil refinery throughput had risen 18.9% from 2022 to the second-highest level on record, according to a May 19 Reuters report.
China refiners maintained high run levels in response to robust recovering domestic fuel demand and to bolster transportation fuel stockpiles ahead of the summer travel season.
On a Wednesday-to-Wednesday basis, market factors balanced demand destruction fears and ANS retraced a rebound rally from its May 3 low on bank failure contagion fears which slashed the Alaskan benchmark to $70 and change. ANS ultimately trimmed just 13 cents over the period from its May 17 close of $77.95 to $77.82 May 24.
ANS never broke above $78 over the week but Brent did, reaching $78.36 May 24. In the process, Brent deprived ANS of its short-lived premium over Brent that began when ANS overtook Brent on May 9 after the European benchmark's extended reign over Alaska crude.
The short duration of the ANS premium over Brent eroded the case for a major market shift on May 9, but rather a hiccup brought on by market volatility.
Perhaps the ANS premium reflected a thirst for Pacific oil cargoes springing from the high April refinery runs in China and/or West Coast pricing disruptions brought on by shut in production due to wildfires in Canada.
Volatility is likely to continue. As Petroleum News went to press May 25, the debt ceiling impasse remained, while WTI and Brent were off 1.88% and 1.67% respectively in early trading.