The petroleum complex attracted scattered support following yesterday’s retracement as underlying support to equity markets and a softer dollar tended to attract scattered buying interest. The market remains cautious in advance of the New Year to assess the success of the OPEC + agreement. Nevertheless concerns still mount over the prospect for a surplus persisting in the first quarter along with some doubts on whether Russia will fully comply with the OPEC agreement. The approach of the New Year along with the heightened volatility in equity markets continues to discourage participation.
The DOE provided little in the way of fresh direction given end of the year tax adjustments of inventory. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) remained virtually unchanged from the previous week. At 441.4 million barrels, U.S. crude oil inventories are about 7% above the five year average for this time of year. Total motor gasoline inventories increased by 3.0 million barrels last week and are about 4% above the five year average for this time of year. Finished gasoline remained the same, but blending components inventories increased last week. Distillate fuel inventories remained unchanged last week and are about 11% below the five year average for this time of year. Crude exports trended higher at 3.0 mb compared to 2.3 last week and an average of 2.0 mb so far this year and 1.0 mb/d last year. Product supplied totaled 20.7 mb with distillate showing a sharp decline.
Despite the recent 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.
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.
The market continued to trade on the defensive as warmer than normal weather conditions prompted liquidation pressure. The EIA storage report at 48 bcf was smaller than expected and kept pressure on values as well. Prospects that the warmer weather conditions this past week will keep storage withdrawals limited will likely maintain a negative influence although at some point the low inventory levels still near 20 percent below the five year average should help support values once again if weather shows a colder trend. Support near 3.15 should be stiff next week.
Charts Courtesy of DTN Prophet X
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