Oil mixed ahead of U.S. inventory data, Fed and OPEC meetings

© Reuters.

By Barani Krishnan

Investing.com -- Crude prices settled mixed on Tuesday as expectations for a U.S. inventory drop and a smaller Federal Reserve rate hike for February faced off with negative connotations linked to a likely OPEC+ decision to keep production steady.

A weaker dollar and an uptick in November demand for U.S. crude and petroleum products, reported belatedly by the EIA, or Energy Information Administration, also bolstered prices. 

Separately, the EIA is expected to report on Wednesday the first weekly drawdown in U.S. crude stockpiles in five weeks, some analysts said, despite an industry-wide consensus for another build during the week ended Jan. 27, although that could be a modest rise.

“There are some things going on that can be perceived as somewhat bullish in the immediate term for oil, which includes the first possible crude draw in five weeks and the widely-expected Fed rate hike of 25 basis points for February, versus the previous 50-bp hike in December,” said John Kilduff, partner at New York energy hedge fund Again Capital.

“That said, there will be just as many negatives for oil if OPEC+ leaves production unchanged at its meeting tomorrow, and India and China continue to leverage the G7 price cap on Russian oil to keep a lid on physical pricing in the international market,” Kilduff said.

OPEC+, which groups the 13-member Saudi-led OPEC, or Organization of the Petroleum Exporting Countries, with 10 independent oil producers, including Russia, is slated to leave oil production unchanged when it meets on Wednesday. 

New York-traded West Texas Intermediate, or WTI, crude for March settled up 97 cents, or 1.3%, at $78.87 per barrel. It earlier hit a three-week low of $76.57.

London-traded Brent crude for March delivery, however, settled down 41 cents, or 0.5%, at $84.49, after a three-week bottom at $83.17.

In Monday’s session, both WTI and Brent fell just over 2% after the Russian government said it had not set a floor price for its oil exports despite being opposed in principle to the G7’s cap of $60 per barrel. The Kremlin also announced that oil companies in Russia, not the government, will decide on contract wording for crude sales. 

Combined, the two statements suggested a freehand for private enterprise to decide on pricing and language deemed appropriate to get Russian oil moving on the global market. Despite the government’s protests against the $60 cap, Russia’s benchmark Urals crude was already trading at a discount of between $30 and $35 a barrel to Brent, and Monday’s statements were interpreted as encouraging that gap to grow.

On the U.S. oil inventory side, market participants were also on the lookout for weekly stockpiles data due after market settlement from the API, or American Petroleum Institute.

The API will release at approximately 16:30 ET (21:30 GMT) a snapshot of closing balances on U.S. crude, gasoline and distillates for the week ended Jan. 27. The numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.

For last week, the consensus of analysts tracked by Investing.com is that the EIA will report a crude stockpile build of 0.376M barrels, versus the 0.533M rise reported during the week to Jan. 20. Some analysts, however, told Investing.com that a crude draw of up to 1.0 million barrels might be possible for last week.

On the gasoline inventory front, the consensus is for a build of 1.442M over the previous rise of 1.763M. Automotive fuel gasoline is the No. 1 U.S. fuel product.

With distillate stockpiles, the expectation is for a drop of 1.3M (NYSE:MMM) barrels versus the prior week’s deficit of 0.507M. Distillates, which are refined into heating oil, diesel for trucks, buses, trains and ships and fuel for jets, have been the strongest component of the U.S. petroleum complex in terms of demand.