ANS ekes weekly gain
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Cooling Middle East tensions counter massive surprise US inventory draw
Steve Sutherlin Petroleum News
North Slope crude shed 38 cents April 24 to close at $88 per barrel, squeaking out a Wednesday-to-Wednesday gain of 8 cents from its close of $87.92 April 17. West Texas Intermediate slid 55 cents to close at $82.81 and Brent slid 40 cents to close at $88.02.
Prices slid despite a surprise massive drawdown in U.S. inventories reported the same day by the U.S. Energy Information Administration.
Prices were held in check in the face of a growing conviction that recent direct hostilities between Iran and Israel will not ignite all-out war in the region. The United States and its allies did announce stricter oil sanctions against Iran, but traders are skeptical about how forcefully sanctions will be imposed, as the Biden administration is trying to avoid higher gasoline prices ahead of the 2024 elections.
A U.S. inventory drawdown did figure into gains on April 23, having factored into a $1.31 leap which took ANS to a close of $88.37. WTI rose 51 cents to close at $83.36 and Brent leapt $1.42 to close at $88.42. American Petroleum Institute data released that day signaled a drop in U.S. supplies, while a weakening U.S. dollar added to the bullish sentiment.
The EIA report April 24 said U.S. commercial crude inventories for the week ended April 19 -- excluding Strategic Petroleum Reserve levels -- fell 6.4 million barrels from the previous week to 453.6 million barrels, 3% below the five-year average for the season.
Analysts polled by The Wall Street Journal had predicted inventories to rise by 500,000 barrels.
The SPR added 0.9 million barrels to hit 365.7 million barrels on April 19.
Total motor gasoline inventories fell by 0.6 million barrels for the period to 226.7 million barrels -- 4% below the five-year average for the time of year. Distillate fuel inventories increased by 1.6 million barrels for the period.
ANS dropped 79 cents April 22 to close at $87.07, as WTI and Brent each lost 29 cents to close at $82.85 and $87 respectively.
ANS rose 28 cents April 19 to close at $87.86, while WTI gained 41 cents to close at $83.14 and Brent rose 18 cents to close at $87.29.
ANS was off 25 cents April 18 to close at $87.58, but WTI gained 4 cents to close at $82.73 and Brent shed 18 cents to close at $87.11.
On April 24, ANS traded at a $5.19 premium over WTI, while Brent traded at a 2-cent premium over ANS.
Middle East triad mutes prices Iran and Israel have recently kept aggression in check, but Iran's relationship with Saudi Arabia and the United Arab Emirates is key to moderation in crude prices during Middle East tensions, according to an April 22 Barron's report.
"The diplomatic deal that seems to be yielding the most dividends for regional energy supplies continues to be the detente between the key Gulf producers (Saudi Arabia and the U.A.E.) and Iran," wrote RBC Capital Markets analyst Helima Croft. "It is far from an easy truce and could be tested once again as the broader Middle East backdrop remains fraught, even if the worst outcome did not come to pass."
Earlier conflicts between Iran and Saudi Arabia often juiced crude prices. In 2022, Houthi-fired missiles striking oil infrastructure in Saudi Arabia pushed oil prices briefly above $120.
Last March, Iran and Saudi Arabia resumed diplomatic relations under a deal brokered by China -- Iran's primary oil buyer, Barron's said, adding that Saudi Arabia wants peace because it seeks to diversify into areas like tourism.
"Tehran and Riyadh have taken steps to ensure that their dialogue continues without the March 2023 diplomatic deal becoming another victim of the Gaza war," Giorgio Cafiero, CEO of Gulf State Analytics wrote in March.
Don't drain the SPR! When the Biden Administration drew down the SPR by more than 280 million barrels during the pandemic, the maximum draw was some 1 million barrels per day for five months, meanwhile OPEC+ had some 4 million bpd of spare capacity.
"It could be argued that the draw was unnecessary," Michael Lynch, senior Forbes contributor said in an April 24 missive.
With an election looming, a further SPR release might lower global prices, but "given how far the SPR has already been reduced, there are clear limits to how much more can be released," Lynch said, adding, "Of course, lower prices for a few months would satisfy Biden's political needs."
The history of petroleum economics reveals failed efforts to calculate a sustainable oil price, which pleases both consumers and producers, and enables the market to balance, he said.
"There is no reason now to think that anyone has a better idea of what the - appropriate' oil price should be," Lynch said. "But frankly it's not clear if the Biden Administration is even considering that in its efforts to manipulate prices, as opposed to simply wanting them - lower' for political reasons."
Historic fears of an Iranian attack on Saudi oil fields have passed without a major catastrophe, leading to complacency about future threats, he said, adding, "The growing politicization of oil, and increased instability in places like Russia, means a future supply disruption cannot be ruled out."
"Oil from the SPR is our first line of defense against the economic havoc that a disruption would wreak," he said.
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