Oil futures: Prices ease from highs amid choppy trade, follows slim EIA crude build

25 Jan 2023

Quantum Commodity Intelligence - Crude oil futures slipped into slight negative territory after a late selloff Wednesday, paring initial gains following a lower-than-expected crude stocks build reported by the EIA, while China's expected demand recovery was again counterbalanced by broader global economic concerns.

March ICE Brent futures were trading at $86.05/b (1830 GMT), compared to the day's high of $87/b and Tuesday's settle of $86.13/b.

At the same time, Mar23 NYMEX WTI was trading $79.91/b, versus Tuesday's settle of $80.13/b.  

Oil markets initially eased Wednesday after data from the American Petroleum Institute released late Tuesday revealed that US commercial crude inventories increased by 3.38 million barrels last week, slightly above expectations.

Gasoline also saw a build of 620,000 barrels, although distillate stocks fell by 1.93 million barrels.

However, prices ticked up later in the session after EIA data revealed a net build in US crude stocks of just 533,000 barrels, below the expected 1 million barrel rise.

Meanwhile, geopolitical tensions were further escalated amid reports Berlin was ready to approve the movement of German-manufactured Leopard 2 tanks to Ukraine, according to Der Spiegel.

German Chancellor Olaf Scholz has decided to deliver the battle tanks following "months of debate," according to the German news outlet's exclusive report.

Russia warned Sunday that nations supplying Ukraine with upgraded military hardware risked retaliation from Moscow.   

"If Washington and NATO supply weapons that would be used for striking peaceful cities and making attempts to seize our territory as they threaten to do, it would trigger a retaliation with more powerful weapons," said State Duma Chairman Vyacheslav Volodin, a close ally of President Putin.

Kremlin spokesman Dmitry Peskov further added that delivery of the tanks would "bring nothing good to the future relationship" between Berlin and Moscow, warning: "They will leave a lasting mark."

The Biden administration also announced Wednesday it will equip Ukraine with the M1A1 Abrams tank, a key reversal in the West’s effort to arm Kyiv as it prepares for a fresh Russian offensive.

OPEC+

Meanwhile, early indications suggest that the OPEC+ Joint Ministerial Monitoring Committee (JMMC) is likely to recommend keeping oil production levels unchanged when they meet next week, following media briefings by delegates.

"OPEC+ looks increasingly likely to keep output levels unchanged even after the scheduled meeting," said Raad Alkadiri, an analyst with Eurasia Group and veteran OPEC watcher. "Prices have firmed, supply remains tight and significant levels of uncertainty prevail for both supply and demand."

Markets were rattled in the previous session after S&P Global's Flash US Composite Output Index was reported at 46.6 in January, with readings below 50 indicating a contraction in business activity.

On the manufacturing side, the S&P PMI came in at 46.8 this month, also indicating a slowdown, despite ticking up from 46.2 in December.

"The worry is that, not only has the survey indicated a downturn in economic activity at the start of the year, but the rate of input cost inflation has accelerated into the new year, linked in part to upward wage pressures, which could encourage a further aggressive tightening of Fed policy despite rising recession risks," said Chris Williamson, chief business economist at S&P Global Market Intelligence.

There was slightly better news from Europe as the S&P Global Flash Eurozone purchasing managers' index (PMI) rose to 50.2 in January from 49.3 in December.