WTI consolidates around $52.50 mark, unfazed by surprise EIA inventory build

WTI crude oil prices are on the back foot on the final trading day of the week; prices dropped as low as the $51.50 mark in the early part of European trade, hitting their lowest levels in two weeks, though at the time of the CME pit open (which often sees volumes pick up and market tone shift), crude oil markets rallied and WTI managed to recover back towards $52.50. Strong US PMI data helped. On the day, WTI is still lower by about 1.4% or slightly more than 70 cents.

The delayed release of EIA official weekly crude oil inventory data was in focus at 16:00GMT; as indicated was a risk by private inventories earlier in the week, headline crude oil stocks posted a surprise build (of 4.351M barrels). Crude oil markets did not see much of a reaction.

Driving the day

Pandemic concerns are the name of the game on Friday as far as crude oil markets are concerned; China is struggling to quash a small outbreak, with 100 cases per day still being reported, which is concerning given how soon the Lunar New Year holiday is and the potential for that to be a super spreader event. Meanwhile, Hong Kong is in lockdown, various European nations have tightened restrictions this week and seem to be eyeing up tougher travel restrictions which could come into force in the coming weeks and the UK government is talking about lockdowns dragging on into the summer (though the Covid-19 statistics there are improving).

Still, despite all of the above, WTI trades within 3% of recent highs, having remained supported within this and last week’s ranges. Indeed, analysts for the most are sticking by their bullish calls; Goldman Sachs thinks that a lack of urgency from the US government to lift Iranian sanctions and a push for larger fiscal spending supports the constructive view on oil and gas prices. The bank estimated that a further $2T in fiscal stimulus over the course of 2021-2022 would increase US demand by 200K barrels per day and added that any delays in a full return of Iran production would support the bullish oil outlook.

On which note, the Iranian’s were today out talking about how they were planning to start ramping up crude oil production. This news came out in the European morning and likely contributed to some of the downside seen at the time. Whether the country is actually able to export this excess production, given the US sanctions that are still in place, is another thing (and of course Goldman remains skeptical).

Elsewhere, Crude oil markets received a boost in wake of a much stronger than expected preliminary US Markit PMI report for this month; the manufacturing index hit a series record high at 59.1 (versus expectations for 56.5) and the services index came in at 57.5 (versus expectations for a drop to 53.4). According to Markit, manufacturers registered the sharpest rise in selling prices since 2008 and the rate of input price inflation was the fastest on record (since 2009). The indices were also driven higher by supply shortages.

WTI key levels