Crude oil extends bull run

Oil keeps its foot on the accelerator with two benchmarks heading for new yearly highs.

Crude oil trading

Oil’s strong start to 2022 continues

Despite slipping into the negative on Monday, crude oil looks like it’s extending a bull run as of Tuesday 18^th 2022.

Two key benchmarks continue their upward trajectory as the hunt for a $90 oil price begins. Indeed, some commentators said last week that an $100 per barrel price is probably going to happen this year.

At the time of writing, West Texas Intermediate had gained roughly 1% on the day. WTI futures were subsequently trading for $84.63.

WTI’s North Sea cousin, Brent, was also showing similar performance. Up 1.15% in the early session, Brent futures were trading for around $87.46.

Traders appear absolutely convinced the demand picture will look similar to pre-pandemic levels this year. Hedge funds were feeling bullish last week too.

Governments globally may be wary of putting their nations back into full lockdowns. Pent up travel demand is being unleashed.

Both benchmarks appear to be heading for November 2021 highs. Good news for oil bulls; less so for consumers.

High fuel costs are starting to bite around the world. We’ve already seen the US dip into its Strategic Petroleum Reserve, which has been a bit of failure. At-the-pump prices continue to rise across the United States. The release of 50 million barrels of crude hasn’t had the effect the Biden White House was hoping for.

Still, that hasn’t put off China.

China to release oil from strategic reserves

Matching the US, China has indicated it will release oil from its stockpiles towards the beginning of the Luna New Year.

That would mean a release sometime around the end of January or start of February 2022. The amount of crude coming from Chinese inventories depends on the oil price around that time. An $85 per barrel price would result in a large drawdown. A price of $75 would mean a slightly smaller one.

As we’ve discussed earlier, it’s a bit of an odd move, given the lack of real impact the US’ strategic withdrawal had on consumer fuel prices. Still, rising fuel costs were enough to trigger nationwide civil unrest in Kazakhstan, so consumer resentment is high.

We’re not for a minute suggesting that a full-scale revolution will be triggered by Chinese petrol prices. Beijing, as we know, is in total control.

China is looking to secure its oil supplies. OPEC+ has committed to more production output from February, but several of its members may be struggling to meet quotas based on technical problems.

Away from OPEC+, more Libyan crude is expected to hit markets soon. The nation has repaired its key oil pipeline and should be reaching normal operational levels soon.

Then there is Iran. We spoke a couple of weeks ago about Iran’s intentions to expand production at some of its mega oilfields, such as the massive South Azadegan field.

Any expansions will be done to satiate Beijing’s thirst for crude. Indeed, the China National Petroleum Corporation (CNPC) is a key ally for Iran’s NOC and will be intimately involved in extracting Iranian blends.

Of course, further Iranian oil output rests on a renewed nuclear deal with the US. Market commentators believe this could actually become a reality this year, so keep your eyes peeled on Persia. Things are getting interesting there.

More US output could also be on the way. According to Baker Hughes, the rig count has added 11 units in the last week, bringing the total up to 492 operational rigs. Canada has added a further 43 units.

Examining US crude oil inventories

A fresh EIA crude stockpiles report lands on Wednesday.

Ahead of that, let’s look at the latest EIA numbers. These record inventories for the week ending January 7^th, 2022.

According to the EIA, U.S. commercial crude oil inventories decreased by 4.6 million barrels from the previous week.

At 413.3 million barrels, U.S. crude oil inventories are about 8% below the five-year average for this time of year.

Total motor gasoline inventories increased by 8.0 million barrels last week and are about 3% below the five-year average for this time of year.