Crude Supported by Tight Supplies ahead of OPEC+, EIA Data

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading flat on Wednesday as traders remained cautious ahead of a key production decision by OPEC and its allies, including Russia, later in the day.

Meanwhile, the markets remained underpinned by strong demand and low supply as well as potential supply disruptions due to geopolitical concerns in Eastern Europe and the Middle East.

At 06:24 GMT, March WTI crude oil futures are trading $88.44, up $0.24 or +0.27% and April Brent crude oil is at $89.37, up $0.21 or +0.24%. On Tuesday, the United States Oil Fund ETF (USO) settled at $62.52, up $0.04 or +0.06%.

OPEC+ Expected to Stick to Existing Policies

The Organization of the Petroleum Exporting Countries and allies, together know as OPEC+, will likely stick to existing policies of moderate output increases on Wednesday, five sources from the producers’ group said, even as it expects demand to rise to new peaks this year and as oil prices trade near seven-year highs, Reuters reported.

Sources said an OPEC+ technical panel meeting on Tuesday did not discuss a hike of more than the expected 400,000 barrels per day from March. However, Goldman Sachs said there was a chance the oil market’s rally would prompt a faster ramp-up.

API Weekly Inventories Report Suggests Tighter Oil Market

The American Petroleum Institute (API) reported a crude oil inventory draw of 1.645 million barrels during the week-ending January 28. Analysts had predicted a build of 1.833 million barrels.

However, the API also reported yet another build in gasoline inventories of 5.816 million barrels for the same time period. This was on top of the previous week’s 2.4 million barrel build.

Meanwhile, distillate stocks saw a decrease in inventory of 2.508 million barrels for the week, after last week’s 2.2 million barrel decrease.

Cushing saw a 1.031 million-barrel decrease last week. This is a major concern. As of January 21, Cushing inventories stood just above 30 million barrels. This is down 60 million barrels at the start of 2021, and down from 37 million barrels at the end of 2021.

Lingering Geopolitical Concerns

Tensions between Russia and the West continue to underpin prices. Russia, the world’s second-largest oil producer, and the West have been at loggerheads over Ukraine, fanning fears that energy supplies to Europe could be disrupted.

On Tuesday, Russian President Vladimir Putin accused the West of deliberately creating a scenario designed to lure it into war and ignoring Russia’s security concerns over Ukraine, Reuters reported.

Daily Outlook

We aren’t expecting a surprise from OPEC+, but the Energy Information Administration (EIA) could, given the American Petroleum Institute (API) crude oil surprise draw.

The EIA report, due to be released at 15:30 GMT, is expected to show a 1.8 million barrel build. Gains could be limited if the government report meets expectations, but could surge if it shows a surprise draw.

Prices are likely to remain supported by bullish demand and lingering geopolitical tensions. But the market could face headwinds if Saudi Arabia and Russia decide to increase production to offset any shortfalls from other OPEC+ members.