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Vol. 29, No.7 Week of February 18, 2024
Providing coverage of Alaska and northern Canada's oil and gas industry

ANS surges to $80s

February rally survives massive 12-million-barrel U.S. inventory build

Steve Sutherlin

Petroleum News

Alaska North Slope crude experienced a momentous trading week ending Feb. 14, surging into the $80s and making its way higher day by day until a large boost in U.S. crude inventories paused the rally.

ANS slid $1.08 on Feb. 14 to close at $81.24 per barrel, while West Texas Intermediate dropped $1.23 to close at $76.64. Brent, which ran neck and neck into the $80s with ANS, dropped $1.17 to close at $81.60.

In early trading Feb. 14, Brent and WTI looked to extend the week's rally, but each benchmark abruptly reversed course as the U.S. Energy information Administration weekly report said U.S. commercial crude inventories excluding the Strategic Petroleum Reserve for the week ending Jan. 9 lofted higher by 12.0 million barrels from the previous week. At 439.5 million barrels, inventories were 2% below the five-year average for the time of year.

The move dwarfed the prediction of analysts surveyed by The Wall Street Journal that crude stockpiles would rise by 2.8 million barrels.

A drop in gasoline inventories of 3.66 million barrels over the same period as well as strong jet-fuel demand helped limit losses for crude, ANZ Research analysts said in a commentary, the Journal reported.

The four-day rally leading up to the Valentine's Day action blasted off on Feb. 8, which saw ANS soar $2.07 skyward to close at $81.48, as WTI rocketed $2.36 to close at $76.22 and Brent blasted $2.42 higher to close at $81.63.

On Feb. 9 ANS inched up 25 cents to close at $81.73, WTI lifted 62 cents to close at $76.84 and Brent lifted 56 cents to close at $82.19.

As traders returned to the market Monday Feb. 12, ANS added 9 cents to close at $81.81, WTI added 8 cents to close at $76.92 and Brent shed 19 cents to close at $82.00.

ANS gained 51 cents Feb. 13 to close at $82,32, as WTI jumped 95 cents to close at $77.87 and Brent added 77 cents to close at $82.77.

From Wednesday to Wednesday, ANS gained $1.83 over its Feb. 7 close of $79.41, reaching $81.24 Feb.14.

Brent slightly overtakes ANS price

Brent seems to be taking the pricing lead over ANS.

On Feb. 14 ANS traded at a $4.60 premium to WTI, but ANS was at a 36-cent discount to Brent on the day.

Brent traded at a small premium to ANS all week, reflecting a recent shift from months of ANS trading at a premium over Brent.

One factor that may explain the ANS fall from the top spot is economic weakness in Asia -- particularly in China, which competes with West Coast markets to attract seaborne crude cargoes on the Pacific. Occasionally, ANS cargoes themselves are shipped to China when demand is high.

Compounding the effect of weaker China demand, Asian markets are flooded with cheaper Russian crude, which is subject to politically imposed price limits due to Russia's invasion of Ukraine.

Global crude prices are lower because India buys oil from Russia, according to India's Minister of Petroleum and Natural Gas Hardeep Singh Puri.

"The world is grateful to India for buying Russian oil; it's not that they don't want us to buy Russian oil," Puri said in a CNBC interview on the sidelines of the India Energy Week conference in Goa.

"If we start buying more of the Middle Eastern oil, the oil price will not be at $75 or $76, it will be $150," Puri said.

Meanwhile declining California production has driven the contributions from foreign sources to California crude markets to an all-time high of 59% of total supplies in 2022, the most recent year for which numbers are available from the California Energy Commission. Alaska supplied 15.2% of California's crude in 2022, and California supplied the rest.

California relied on foreign sources for 5% of its crude in 1992.

The growing dominance of foreign suppliers is bringing West Coast crude prices into closer parity with the internationally determined Brent.

California is an energy island, bounded by the Pacific on the west and isolated from Lower 48 pipeline networks and WTI pricing by the Sierra Nevada mountains to the East.

Brent's premium over WTI will widen over the next two years on structurally higher oil tanker freight rates, Goldman Sachs analysts said Feb. 12.

Goldman said it expects the Brent-WTI differentials will average $5.30 per barrel this year and in 2025, up from its previous range of $4.50 to $4.60, MarketWatch reported.

The bank said locational factors prompted its call to widen the Brent-WTI spread, as militant attacks on ships continue at the Bab-El-Mandeb Strait oil supply chokepoint in the Red Sea.

"Red Sea disruptions to oil flows ... reinforce a structural bull market in oil tankers as vessels undertake much longer journeys around the Cape of Good Hope, increasing vessel demand, and widening regional spreads," Goldman said.

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