Oil falls by more than $1/bbl on surprise build in US crude inventories

SINGAPORE (ICIS)–Oil prices fell by more than $1/bbl on Thursday after industry data showed a surprise build in US crude inventories for the second straight week, raising concerns of faltering fuel demand.

Data from the American Petroleum Institute (API) on 18 January showed that US crude inventories unexpectedly rose by 7.6m barrels last week.

02:33 GMT ($/bbl)	Contract	Low	High	Open	Last	Previous	Change	Low Change
Brent	Mar	83.90	84.52	84.34	84.22	84.98	-0.76	-1.08
WTI	Feb	78.33	79.17	79.14	78.56	79.48	-0.92	-1.15

As for refined products, gasoline stocks increased by 2.8m barrels, while distillate inventories fell by 1.8m barrels.

Crude oil prices initially climbed to their highest intra-day levels since early December on 18 January amid expectations of stronger energy demand following the re-opening of China’s economy, along with a higher 2023 crude demand growth forecast by the International Energy Agency (IEA).

The IEA sees global oil demand growing this year to a record 101.7m bbl/day, representing an increase of 1.9m bbl/day year on year.

Over half of this forecast increase is attributed to China, the world’s biggest crude importer, after the country abandoned its zero-COVID policy.

“Some upward revisions were made to Chinese oil demand following the reopening and this should leave China making up almost 50% of global demand growth,” Dutch banking and financial services firm ING said on Thursday.

“A large share of demand growth this year is also expected to be driven by jet fuel,” it said.

However, worries over a looming US economic recession after US Federal Reserve policymakers said that interest rates needed to go beyond 5% spooked investors, causing oil prices to close lower overnight.

The US Federal Reserve’s key overnight lending rate currently sits in a target range of 4.25% to 4.50%.

Weaker-than-expected retail sales and manufacturing data in the US also weighed on sentiment.

Official data showed that December retail sales in the US had fallen by 1.1% from the previous month, marking the sharpest pace of decline in 2022.

With declines in purchases of motor vehicles and savings dwindling, there are concerns that the world’s biggest economy would go into recession.

Crude supply from non-OPEC members is expected to grow by 1.9m barrels/day this year, but this will be partially offset by expectations of an 870m barrels/day decline in supply from OPEC and its allies (OPEC+), largely as a result of Russia, the IEA said.

The IEA expects that the oil market will be in surplus in the first quarter of 2023, but supply will start to tighten from the second quarter onwards, with more pronounced deficits in the second half of the year.

Focus article by Nurluqman Suratman

Click here to read the Ukraine topic page, which examines the impact of the conflict on oil, gas, fertilizer and chemical markets.

Visit the ICIS Coronavirus topic page for analysis of the impact on chemical markets and links to latest news.