Oil prices end higher as weekly U.S. crude production and supplies drop

Price moves

• West Texas Intermediate crude for March delivery
  CL00,
  +1.16%

  CL.1,
  +1.16%

  CLH24,
  +1.16%
  rose 72 cents, or 1%, to settle at $75.09 a barrel on the New York Mercantile Exchange.

• March Brent crude
  BRN00,
  +0.19%

  BRNH24,
  +0.17%,
  the global benchmark, climbed 49 cents, or 0.6%, to $80.04 a barrel on ICE Futures Europe.

• February gasoline
  RBG24,
  +0.18%
  shed less than 0.1% to $2.21 a gallon, while February heating oil
  HOG24,
  -0.33%
  lost nearly 0.4% to $2.68 a gallon.

• Natural gas for February delivery
  NGG24,
  +8.90%
  settled at $2.64 per million British thermal units, up 7.8%.

Supply and output

Data from the Energy Information Administration released Wednesday revealed a more than 9 million barrel weekly decline in U.S. crude inventories, along with a huge drop in domestic oil production amid weather-related disruptions.

“This is a report of big numbers and transitory influences,” Matt Smith, Americas lead analyst at Kpler, told MarketWatch.

“Last week’s winter storm has bludgeoned production and refining activity — both are down big time but set to rebound in the weeks ahead,” he said.

“Other big drops have come from implied gasoline demand and ultimately crude inventories,” said Smith. “The market has been shaken up like a snow globe. It’s going to take a few weeks for everything to settle down.”  

The EIA reported that U.S. commercial crude inventories declined by 9.2 million barrels for the week ended Jan. 19.

On average, analysts surveyed by S&P Global Commodity Insights forecast a weekly decline of 3 million barrels. Late Tuesday, the American Petroleum Institute reported an inventory drop of 6.67 million barrels, according to a source who cited the figures.

U.S. oil production, meanwhile, dropped by 1 million barrels to 12.3 million barrels a day. The 13.3 million barrel-a-day total reported the week before was a record high.

The survey by S&P Global Platts had found that analysts expected U.S. crude production to decline by 900,000 barrels a day to 12.4 million barrels a day, though the actual weekly decline reported by the EIA was a bit larger.

Analysts expected a drop due to extreme cold weather and operational challenges shutting in output, particularly in North Dakota and Texas, the survey showed.

See: Oil traders care more about North Dakota weather than Red Sea missile attacks

Crude stocks at the Cushing, Okla., Nymex delivery hub also fell by 2 million barrels last week, the EIA said.

The EIA report revealed a weekly supply increase of 4.9 million barrels for gasoline and a fall of 1.4 million barrels for distillate stockpiles. The S&P Global Commodity Insights analyst survey showed forecasts for a gain of 1 million barrels for gasoline and a decline of 81,000 barrels for distillates.

Natural-gas futures were also up strongly Wednesday.

Natural gas “will see perhaps one of the largest supply drawdowns in history this week” in the U.S., said Phil Flynn, senior market analyst at The Price Futures Group, in a daily report.

The EIA will report its weekly data for the heating fuel on Thursday. On average, analysts polled by S&P Global Commodity Insights expect the data to show a fall of 326 billion cubic feet for the week ending Jan. 19.

“Natural-gas prices are now getting a little bit of a boost after the plunge that we saw on Sunday night because weather forecasts are starting to turn colder once again,” said Flynn.

China demand

Oil prices got an additional boost as China is “taking steps to try to shock and awe its beleaguered economy out of a tailspin,” said Flynn.

The Peoples Bank of China said it plans to loosen monetary policy to support the country’s ailing economy, cutting the reserve requirement ratio for banks by 0.5 percentage points on Feb. 5. That should provide 1 trillion yuan ($139 billion) in long-term liquidity to the market, said the central bank’s Governor Pan Gongsheng.

“China is still a driving force for oil demand even as India will start to overtake them from a demand growth perspective,” said Flynn.