Alaska North Slope crude paused a nine-trading-day advance Jan. 5, slipping 2 cents to close at $81.48 per barrel. West Texas Intermediate gained 86 cents to close at $77.85 and Brent gained 80 cents to close at $80.80.
The indexes were coming off a strong trading day Jan. 4 that saw ANS jump $1.15 to close at $81.50, while WTI rose 91 cents to close at $76.99 and Brent popped $1.02 to close at $80.00. Traders reacted positively to news that the Organization of the Petroleum Exporting Counties and its allied producing countries would stick with a previously scheduled 400,000 barrel per day increase in production for February.
In the nine sessions that began on Winter Solstice Dec. 21, the only red ink seen amongst the three indexes was a 3-cent loss for Brent on Dec. 30.
Otherwise, prices advanced in a dramatic turnaround from heavy losses Dec. 20 and Dec. 19 ignited by omicron variant demand worries.
ANS shot up Dec. 21 by $2.13 to close at $75.55, while WTI leapt $2.80 to close at $71.12 and Brent jumped $2.46 to close at $73.98, as traders began to gain a measure of clarity as to future demand under the omicron scenario.
The bullish case for oil was boosted over the nine-day rally by dramatic drawdowns on U.S. commercial crude stocks.
In its Jan. 5 report, the U.S. Energy Information Administration said that for the week ending Dec. 31, U.S. commercial crude oil inventories - excluding those in the Strategic Petroleum Reserve - fell by 2.1 million barrels from the previous week. At 417.9 million barrels, 8% below the five-year average for the time of year.
It was the sixth straight week of U.S. inventory draws.
Total motor gasoline inventories increased, however, by 10.1 million barrels - a level 4% below the five-year average for the time of year, the EIA said.
Analysts said gasoline demand was hampered in the final week of 2021 by harsh weather and a reduction in travel as the omicron variant pushed COVID-19 case numbers higher over the holidays.
Harsh weather, however, is prompting a short-term increase in U.S. oil prices as it nips the Northern United States and Canada, disrupting oil flows, Bloomberg reported Jan. 5.
In North Dakota and Alberta sub-zero temperatures shut down TC Energy Corp.’s Keystone pipeline Jan. 4, slowing oil flows and making it hard to restore service.
In the Bakken shale, the freeze is curtailing production, sending local crude prices to the highest levels since November. Canadian prices have also surged.
ANS remains at premium to Brent
On Jan. 5, ANS closed once again at a premium to Brent, but the spread narrowed as Brent gained 80 cents versus a 2-cent loss for ANS. It is possible that Chinese buying is on the wane, freeing Pacific cargoes to sail to the West Coast to compete with ANS.
Brent’s gain on ANS, however, may more likely be a matter of timing. Brent and WTI were up sharply in early trading Jan. 5, before falling back late in the day after a release of minutes from the U.S. Federal Reserve meeting indicated that the Fed may raise interest rates more quickly than previously anticipated.
The news spiked a risk-off atmosphere in financial and commodity markets that spread to oil markets.
The Dow Jones Industrial Average fell, and Nasdaq notched a 3.3% closing loss.
Brent - which had traded as high as $81.36 - fell to a closing price of $80.80.
ANS prices, which are estimated later in the day by the Alaska Department of Revenue, may simply have been farther along the general risk-off curve, which was accelerating as U.S. stock markets closed.
This scenario is supported by the fall of Brent and WTI after the close, which saw Brent slide to a low of $79.67 before recovering above $80 in early trading Jan. 6.
As Petroleum News went to press Jan. 6, Brent had improved to $81.89, $1.09 above the previous close. WTI stood at $79.08, up $1.23.
OPEC+ to open taps
OPEC+, at the OPEC and non-OPEC Ministerial Meeting held via videoconference Jan. 4, reconfirmed the production adjustment plan and the decision to adjust upward the monthly overall production by 0.4 million bpd for the month of February.
In opening remarks to the Joint Technical Committee of the Declaration of Cooperation meeting Jan. 3, OPEC Secretary General Mohammad Sanusi Barkindo said the group needs to “remain highly nimble and adaptable to the constantly changing situation,” adding, “Indeed, this has been the modus operandi of the DoC countries in dealing with the volatile oil market dynamics throughout the pandemic.”
A flexible approach has added sense a sense of stability, reassurance and continuity to the market and investors in the face of ongoing uncertainties, he said.
Referencing OPEC’s Monthly Oil Market Report, Barkindo said global oil demand is projected to reach 100.6 million barrels per day in 2022, surpassing pre-pandemic levels
Under the OPEC+ February production schedule, the OPEC countries are slated to produce 24.808 million bpd, while non-OPEC countries are slated to produce 16.086 million bpd, leading to total OPEC+ production of 40.894 million bpd.
Although OPEC+ has published the schedule, the actual production may end up being lower. Some OPEC+ countries have in practice been unable to meet the higher production quotas. According to a Bloomberg survey, OPEC+ added only 90,000 bpd in December.
Nonetheless, the EIA credited the group for boosting oil prices in 2021.
Global petroleum production increased more slowly than demand in 2021, driving higher prices, the EIA said.
“The slower increase in production was mostly attributable to OPEC+ crude oil production cuts that started in late 2020,” it said. “Increasing COVID-19 vaccination rates, loosening pandemic-related restrictions, and a growing economy resulted in global petroleum demand rising faster than petroleum supply.”
The spot price of Brent crude started the year at $50 per barrel and increased to a high of $86 in late October before declining in the final weeks of the year, the EIA said.
Brent’s 2021 annual average of $71 is the highest in the past three years, it said, adding that the price of WTI traced a similar pattern to Brent and averaged $3 less than Brent in 2021.
The EIA said that according to its December Short Term Energy Outlook estimates, U.S. crude oil production in 2021 decreased by 0.1 million bpd from 2020 and by 1.1 million bpd from 2019.
“Cold weather in February and hurricanes in August contributed to this decrease, but it also was a result of the decline in investment among the U.S. oil producers since mid-2020,” the EIA said.
Bullish: Pioneer flies naked Pioneer
Natural Resources Co. closed out almost all its hedges for 2022, according to a Jan. 5 Bloomberg report.
The move will cost the large Permian Basin producer $328 million spread over the course of 2022, but leaves the company positioned to profit on higher oil prices, it said in a filing.
The company also said it bought back $250 million of its own shares during the fourth quarter.
