WTI is set to end its second week in negative territory and trades close to levels seen earlier this month. The decline in crude prices can be attributed to Russia's recent output and export cuts announcement, as well as a decrease in demand for oil in the US, evident from the accumulation of inventory over the past week. However, renewed optimism surrounding China's reopening and upgraded forecasts for global growth by IEA and OPEC for 2023 are keeping crude prices from completely collapsing. In this report, we will explore the catalysts driving WTI's price.
Russia seen ramping up output cuts
Last week a report from Reuters pointed out that Russia will cut its crude production by 500 thousand barrels per day in March, accounting for approximately 5% of its output, as a response to the West imposing a price cap on Russian oil and oil related products. The G7, the European Union and Australia agreed to ban the use of Western-supplied maritime insurance, finance and brokering for seaborne Russian oil priced above $60 per barrel. Earlier today, another Reuters report indicated that Russia plans to cut oil exports towards western ports by up to 25% in March and it‘s in essence attempting to revamp its output cuts in to bump up its own crude prices. Russia has so far managed to re-route exports towards the east after the European Union’s sanctions and the G7‘s price cap, primarily targeting India and China who are expected to dominate global growth expectations this year. Last week the International Energy Agency raised its expectations for global oil demand in 2023 to 2 million barrels per day (bpd), with the rise being of about 100k bpd. The rise seems to be related to the reopening of China, and its characteristic, that IEA was reported stating that “The risk-averse climate of recent months subsided on optimism that China’s reopening would bolster global growth. Adding to the more upbeat mood was a distinct improvement in Europes economic outlook, buttressed by the spectacular slump in natural gas prices”.
API records second straight week of build ups, EIA data incoming
The American Petroleum Institute ( API ) reported a buildup of almost 10 million barrels in crude oil inventories yesterday, exceeding expectations for a mere increase of 1.2 million. This is the second straight week of significant inventory buildups and could be one of the reasons why WTI prices dropped during yesterday's session. Later today, the Energy Information Administration's ( EIA ) weekly crude inventories report is due, and it is expected to capture the attention of energy traders. Forecasts indicate that EIA's stocks would increase by 2 million barrels after last week's 16-million-barrel buildup.
However, the inventory figure may end up being much higher than expected, based on yesterday's API release. The continuous buildup of EIA's inventories over the past eight weeks suggests weakened demand for crude and increases the likelihood of WTI prices declining further. Finally, the Baker Hughes oil rig count on Friday showed a decline in the number of active oil rigs in the US by 2, indicating a slowdown in demand.
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