WTI Higher Despite Inventories Rising

WTI crude oil prices continued to edge higher on Wednesday despite a surprise build in US inventories. Traders have looked beyond domestic factors to international price determinants.

Refinery Outages Offset Build

Crude prices drifted up in tandem with a weaker US dollar on Wednesday. Markets were again pricing in an interest rate cut by the FOMC despite Fed Chairman Jerome Powell reiterating a more hawkish stance. However, early Wednesday gains were trimmed when the Energy Information Administration (EIA) data showed that US inventories increased by 5.5 million barrels, but oil still ended higher. The build exceeded forecasts of a 0.6 million rise aligned with prior American Petroleum Institute (API) figures. While crude inventories rose, distillate inventories declined. Analysts attributed this to lower refinery throughput during the period, including an ongoing outage at BP's Whiting refinery since last week.

Notably, the EIA reported US production reached another record high of 13.3 million barrels per day in early February. However, the agency forecasted output would fall after this point, questioning the sustainability of current levels. In December, increased American production offset production cuts by OPEC+ countries.

The Real Drivers of WTI

Despite projections of tighter mid-year supply, analysts pointed to unchanged inventories at the Cushing storage hub compared to the week prior. Price movements correlated more closely with emerging rumours of an Israel-Hamas ceasefire, though Israel rejected the offer, with more negotiations keeping oil risk-on. Overall, crude fluctuations have been comparatively modest, indicating acceptance of potential Middle East supply disruptions.

The Suez Canal crisis may affect tanker transit times to Europe without interrupting flows. While US production is maximised, a spare OPEC capacity of 5 million barrels per day provides a buffer against short-term supply issues. Nevertheless, International Energy Agency (IEA) forecasts point to an enduring 120 thousand barrels per day global deficit supporting an uptrend to the mid-$80s over coming quarters.​

WTI in Potential Flag Pattern

While crude oil moved higher after rebounding from $71.50 per barrel, the rejection of the lower support channel hints at a falling flag pattern. It remains unclear if it has fully played out, as bulls may attempt to test resistance at the channel's upper boundary. Should bulls regain control and push prices back above $75 and $76.75, a rise towards $80 could materialise prior to validating the IEA's forecast. Conversely, if selling pressure triggers a break below the lower bound, this would pave the way for a decline to first $70 and then $68, with $65 potentially coming into focus as further downside is exposed.

Source: SpreadEx / Light Crude

Key Takeaways

WTI continued to edge higher despite a surprise build in US inventories. Refinery outages offset the build, with lower throughput attributed to an ongoing outage at BP's Whiting refinery. Crude moved in tandem with a weaker US dollar. Though the EIA report trimmed early gains, crude's upside has correlated more closely with emerging rumours of an Israel-Hamas ceasefire. Looking ahead, US production reached another record high in early February but is forecast to fall after that. And while the Suez Canal crisis may affect tanker transit times to Europe, it is not expected to interrupt flows.