By Barani Krishnan
Investing.com - The Saudis better wish for more U.S. crude exports each week if they want to get $70+ oil.
A drop of a little more than 500,000 barrels in crude shipments was one reason for last week's unexpected rise in U.S. inventories, according to data on Wednesday that led to lower trading prices for both West Texas Intermediate crude and London's Brent oil.
WTI settled down 53 cents, or 1%, at $59.41 per barrel, after rising 2% in the previous session.
Brent, the global oil benchmark, ended the day's official trade down 14 cents, or 0.2%, at $67.83.
The U.S. Energy Information Administration, in its weekly dataset on oil supply-demand, said crude inventories grew by 2.8 million barrels in the week to March 22 after a 506,000-barrel decline in exports and a 400,000-barrel slide in refinery runs.
The stock build defied analysts' expectations for a draw of 1.1 million barrels. The data disappointed oil bulls counting on a third-straight week of draws after a total inventory slide of nearly 14 million barrels in the two previous weeks.
"The EIA report was bearish relative to expectations, as crude oil inventories rose, due, in part, to a steep drop in exports week on week," said John Kilduff, founding partner at New York energy hedge fund Again Capital.
The EIA also reported that gasoline inventories fell by 2.88 million barrels, compared with expectations for a draw of 2.78 million barrels. Distillate stockpiles dropped by 2.08 million barrels, compared with forecasts for a decline of 0.9 million.
While gasoline demand was strong ahead of the peak U.S. summer driving season and refinery runs for diesel were active too, "the refined product drawdown does not completely offset the bearish crude oil factor," Kilduff noted.
The United States has to export substantial volumes of crude oil each week if Saudi Arabia is to realize its aim of ensuring tight U.S. supplies that would lead to higher WTI and Brent prices. The Saudis need Brent to be at $80 a barrel and above for their typical annual budget, but they have said that they're willing to settle for $70 and above under current market conditions.
While massive cuts in Saudi crude shipments to the U.S. under the OPEC+ pact with Russia have helped create a tight supply situation, record exports of crude by the United States itself has been a bonus for the kingdom in achieving its target. There is, however, a flip side to this. The higher the U.S. crude shipments, the more the Saudis risk in losing market share to American exporters offering global buyers light oil of comparable quality that Riyadh produces less of these days.
WTI is up 30% on the year and Brent shows a 25% rise thanks to the OPEC+ cuts and U.S. sanctions against Iranian and Venezuelan oil, which have severely crimped supply of heavy crude blends that come into the United States each week to be processed into diesel and other transportation fuels.
The rally in oil could face stronger headwinds as worries of a potential U.S. recession and an economic slowdown from China to Europe take hold.
After each week's EIA dataset, those could matter more on how the market perceives oil demand.