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Oil futures ended on a mixed note on Tuesday, with U.S. benchmark prices down, but global benchmark Brent crude modestly higher, as traders weighed potential risks to supplies, as well as demand.
Hopes that President Joe Biden will “manage to get his stimulus plan approved quickly” provided some support for oil, “together with a promising pledge by Iraq to cut its production in the beginning of 2021 to compensate for 2020’s sub-compliance,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy, in Tuesday commentary.
Oil prices, however, are likely to “hold back if the Indonesian vessel seizure gets resolved quickly and if today’s blast in Saudi Arabia proves to be an isolated incident that does not escalate regional tensions, consequently not affecting oil output,” he said.
Indonesian authorities seized Iranian and Panamanian-flagged vessels for suspected illegal oil transfers, Reuters reported Tuesday. News reports, meanwhile, said two loud booms were heard over Riyadh, a few days after Saudi Arabia said it intercepted an apparent missile or drone over its capital.
“What the market is now really worrying about is crude storage levels, after last week’s surprise rise in the U.S.,” said Tonhaugen. Another week of supply builds would “ring the alarm in trading floors that something changes in the market. That is demand.”
So “the elephant in the room is now oil demand and how the latest lockdowns and restrictions globally are affecting it,” he said. “Oil demand is definitely under pressure currently and will be for a while until lockdowns are lifted and Covid-19 infection speed slows down.”
On Tuesday, West Texas Intermediate crude for March delivery CL.1, -0.42% CLH21, -0.42% fell by 16 cents, or 0.3%, to settle at $52.61 a barrel on the New York Mercantile Exchange.
Meanwhile, the front-month March Brent crude contract BRNH21, -0.13%, the global benchmark, added 3 cents, or nearly 0.1%, to $55.91 a barrel on ICE Futures Europe.
“So far in 2021, oil traders have gained increased clarity regarding global production and supply dynamics which has acted as a tailwind for the energy markets,” Tyler Richey, co-editor at Sevens Report Research, told MarketWatch.
Domestic oil production has been “largely steady” at 11 million barrels per day, while policy developments between the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, have been positive for prices, said Richey, with Saudi Arabia unexpectedly pledging to cut production” by 1 million barrels per day in February and March.
U.S. benchmark oil prices have recovered “just about all of the COVID-19 driven losses from 2020, but “we will need to gain further clarity on the health of global demand for refined products before the major oil benchmarks are able to make a run at $60 a barrel and new 52 week highs,” said Richey.
Hinting at a recovery, the International Monetary Fund on Tuesday raised its forecast for global economic growth this year to 5.5%, but warned of “extraordinary uncertainty” about the outlook.
Back on Nymex, petroleum product prices settled higher. February gasoline RBG21, +1.24% tacked on 1.3% to $1.5807 a gallon and February heating oil HOG21, +0.16% added 0.3% to $1.5984 a gallon.
February natural gas NGG21, +2.15%, which expires at the end of Wednesday’s session, moved up by 2.1% to settle at $2.656 per million British thermal units.
The American Petroleum Institute, a trade group, will issue weekly data on U.S. petroleum supplies late Tuesday, followed by official data from the Energy Information Administration early Wednesday.
On average, analysts expect the EIA to report a decline of 1.7 million barrels in domestic crude supplies for the week ended Jan. 22, according to a survey conducted by S&P Global Platts. They also forecast a weekly climb of 1.2 million barrels in gasoline stockpiles and a decline of 800,000 barrels for distillate inventories.
