The petroleum complex continues to trade in a volatile fashion with strong gains following the sharp declines apparent Monday. Ideas the market was oversold along with sympathetic buying in line with a recovery in outside markets particularly equities led to renewed interest on the long side within the complex. Gains totaling over 3.00 per barrel or close to 8 percent were registered in crude. In gasoline prices rose over 9.50 cents per gallon while distillate lagged with gains of 7.50 cents. Overall the buying was not surprising as gains in equity markets helped encourage ideas that recent selling on fears of a recession might be overdone particularly given the reports that consumer spending in the US had not been impacted by the recent weakness in equity valuations. Holiday retail sales excluding autos rose 5.1 percent between Novemeber 1-December 24 from a year earlier the strongest increase in 6 years. In the background, remained constructive comments by the Saudi Oil minister along with fears that the shift in presidential leadership at OPEC to the Venezuelans in January might make for a more radical pricing approach in 2019 than what has been apparent. were reported if were reg. sharp losses of yesterday were followed by a strong recovery rally today. Statements by the Saudi oil minister suggesting that oil stocks will begin to fall by the end of the first quarter and ideas that capital expenditures next year will fall dramatically in the US oil patch helping restrain production also remained as constructive background influences.
Despite the recovery and the appearance that a selling climax occurred near the 43.00 level last week in WTI crude, the market is likely to remain cautious on the upside. Russia’s commitment to the agreement remains a point of contention. In addition the prospect that the market will continue to experience an increase in inventories during the first quarter will likely remain a source of uncertainty. In the ARA region (Amsterdam, Rotterdam and Antwerp) inventories of fuel oil, recently one of the tightest aspects of the market has eased and currently stand above the 5 year range. This appears to be leading to weakness in the 2 Oil crack and has also led to the unwinding of long ULSD spreads against gasoline.
We remain long Feb RBOB Crack at 8.80 from Friday risking the 7.80 level and an upside objective of 11.5- 12.00. In Feb Crude we would look for resistance to build in the 47.50-48.00 area basis Feb WTI crude and favor the long side on pullbacks. Note the DOE Inventory report will be released on Friday at 11:00 EST. Estimates for the report are for crude to be down 2.7, distillate off 1.2 and gasoline stocks up .3.
The market failed to followthrough on early weakness linked to forecasts of moderate temps as renewed buying interest developed at the lower levels. The stregth to equity markets and renewed optimism over the domestic economy helped uncover a steadier tone. In addition the low stock levels despite record high production continues to keep the market on edge. Reports coal switching might shut off if prices decline below 3.50 has helped make this a key support area ahead of the Jan expiration tomorrow. Expectations for the EIA report to be released Friday at 10:30 is forecast to show a draw in inventories of are for a withdrawal of 68 compared to 122 bcf a year ago and 121 bcf draw for the five year average.
Charts Courtesy of DTN Prophet X
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