Builds in U.S. Crude Stocks Offset its Gains From a Potential Extension to the OPEC+ Output Cuts

Recap:  The oil market ended the session mostly sideways after posting the day’s trading range by mid-morning as larger than expected builds in U.S. crude stocks offset its gains from a potential extension to the OPEC+ output cuts. The crude market posted a low of $77.78 in overnight trading amid a large build in U.S. crude stocks of 8.4 million barrels reported by the API on Tuesday evening and the hopes for a Gaza ceasefire deal in the coming day. The market later bounced off its low and retraced its losses as it posted a high of $79.62 ahead of the release of the EIA’s weekly petroleum stocks report. However, the market erased its gains and traded back towards the $78.00 level following the inventory report, which showed a larger than expected build in crude stocks of over 4 million barrels. The market traded sideways during the remainder of the session, with the April WTI contract settled down 33 cents at $78.54. The April Brent contract settled up 3 cents at $83.68. However, the product markets ended the session lower, with the heating oil market settling down 8.77 cents at $2.6583 and the RB market settling down 7.34 cents at $2.2710.

Technical Analysis:  The oil market is likely to retrace some more of its recent gains and continue to trade in its recent trading range amid the expectations that the Fed will delay its interest rate cuts while the market awaits updates on a possible ceasefire deal between Israel and Hamas. Technically, the market looks overbought, with stochastics looking ready to cross to the downside. The market is seen finding support at its low of $77.78, $77.17 followed by $75.84, $75.52-$75.49, $75.21 and $74.33. Meanwhile, resistance is seen at its high of $79.62, $80.00 and $80.64.

Fundamental News:  The EIA reported that U.S. crude stocks increased while gasoline and distillate inventories fell last week as refiners ran at below seasonal lows due to planned and unplanned outages. Crude oil inventories built for the fifth consecutive week, increasing by 4.2 million barrels to 447.2 million barrels in the week ending February 23rd. Stocks at Cushing, Oklahoma increased by 1.5 million barrels to 31 million barrels. Meanwhile, gasoline stocks fell for a fourth consecutive week, falling by 2.8 million barrels to 244.2 million barrels.

Russia’s Deputy Prime Minister, Alexander Novak, said that Russia is not considering a ban on diesel exports and that a ban on gasoline exports may be lifted at any moment if the market becomes saturated. On Tuesday, Russia ordered a six-month ban on gasoline exports from March 1st to keep prices stable amid increasing demand from consumers and farmers and to allow for maintenance of refineries.

IIR Energy reported that U.S. oil refiners are expected to shut in about 1.9 million bpd of capacity in the week ending March 1st, increasing available refining capacity by 418,000 bpd. Offline capacity is expected to fall to 1 million bpd in the week ending March 8th.

Trans Mountain Corp said it successfully removed a pipe from the final section of an expansion project that will nearly triple the flow of crude oil from Alberta to the Pacific Coast. The expanded pipeline’s anticipated in-service date continues to be in the second quarter of 2024.

The U.S. economy grew at a solid rate in the fourth quarter amid strong consumer spending. The Commerce Department's Bureau of Economic Analysis said in its second estimate of fourth-quarter GDP growth that GDP increased at a 3.2% annualized rate in the fourth quarter, revised slightly down from the previously reported 3.3% pace. The economy grew at a 4.9% pace in the July-September quarter. It expanded 2.5% in 2023, up from 1.9% in 2022 and is growing above what Federal Reserve officials regard as the non-inflationary growth rate of 1.8%.

Early Market Call – as of 8:30 AM EDT

WTI – April $78.71, up 17 cents

RBOB – March $2.2720, up 10 points

HO – March $2.6415, down 1.68 cents

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