Oil Prices Surge After Bullish U.S. Crude Inventory Report and Global Demand Forecasts

Crude oil prices soared on Thursday as the U.S. reported an unexpected weekly draw in domestic commercial crude supplies, while extreme cold weather hindered production.

Positive Inventory Report and Disruption

The U.S. Energy Information Administration revealed a larger-than-expected 2.5M-barrel draw in crude inventories, allaying concerns of a substantial build-up while disregarding fears of other inventory surpluses. Moreover, approximately 40% of North Dakota’s oil production remained halted due to the harsh weather conditions. This unexpected draw and the production disruptions due to the weather acted as catalysts for the surge in oil prices.

Higher Global Demand Forecasts

The International Energy Agency (IEA) raised its 2024 global oil demand growth forecast for the third consecutive time, estimating an increase of 1.24M bbl/day. This bullish forecast for global oil consumption further buoyed the market sentiment. However, the IEA’s revised projection fell short of OPEC’s forecast for a 2.25M bbl/day demand growth this year, issued just a day before.

The IEA stated in its latest report that the global oil market appears “reasonably well supplied in 2024, with higher than expected non-OPEC+ production increases set to outpace oil demand growth by a healthy margin.” It projected a healthy surplus in oil supply compared to the anticipated demand growth.

Market Response

Front-month Nymex crude (CL1:COM) for February delivery surged by +2.1% to reach $74.08/bbl, marking its most substantial gain in two weeks. Similarly, front-month March Brent crude (CO1:COM) experienced a notable increase, rising by +1.5% to reach $79.10/bbl, its highest settlement value this year.

Impact on Market Players

Oil-related exchange-traded funds such as (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), and (NRGU) were impacted by this surge in oil prices. Among individual companies, Devon Energy (DVN) saw a decline for the eighth consecutive session, reaching its lowest level since December 2021. Meanwhile, Exxon Mobil (XOM), Chevron (CVX), and APA Corp. (APA) all witnessed new 52-week intraday lows, depicting the market’s response to the surge in oil prices.

Market Stability Amidst Geopolitical Turmoil

Despite the ongoing Israel-Hamas conflict and the attacks on shipping in the Red Sea, oil prices have remained range-bound since the beginning of the year. Jim Ritterbusch, president of Ritterbusch and Associates, noted, “The turmoil in the Mideast has kicked up freight and insurance rates significantly but [has] not yet affected total global oil supply other than delaying shipments toward Europe and other regions.”