Oil prices have extended their losses from yesterday with WTI back below $74 following last night’s unexpected crude inventory build reported by API. Technicals are also weighing on crude prices after WTI triggered a ‘death cross’…
Crude had risen about 8% since its December low as Houthi attacks on vessels in the Red Sea forced tankers and other ships to divert on longer voyages, boosting costs.
Despite a US-led task force to protect the key waterway, nearly half of the container-ship fleet that regularly passes through the Red Sea is currently avoiding the route.
Although “the attacks in the Red Sea are likely to keep markets on edge,” signs of inventory builds in the US “may exert downward pressure on crude oil prices,” said Redmond Wong, market strategist at Saxo Capital Markets Ltd. in Hong Kong.
We shall see…
API
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Crude +1.837mm (-2.4mm exp)
DOE
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Crude -7.11mm (-2.4mm exp) – biggest draw since August 2023
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Cushing +1.51mm
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Gasoline -669k (+100k exp)
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Distillates +741k (+700k exp)
Completely flipping the API script, the official data showed a large crude inventory draw of 7.1mm barrels (the biggest since August). Cushing stocks rose for the 10th week in a row, Distillate inventories up for 5 straight weeks while Gasoline stocks drew-down for the first time in six weeks…
Source: Bloomberg
The Biden administration added 793k barrels to the SPR = that is the largest addition since September…
Source: Bloomberg
Cushing stocks are at their highest since August..
Source: Bloomberg
US Crude production was steady at record highs 13.3mm b/d…
Source: Bloomberg
WTI was hovering below $73.20 ahead of the official print and rallied modestly after…
As Bloomberg’s Grant Smith reports, new OPEC+ supply curbs taking effect on Jan. 1 should stave off the surplus previously expected during the first quarter, according to the International Energy Agency, even if the cartel delivers only around half its pledged 900,000 barrel-a-day cuts.
At the same time, the potential for conflict escalation in the Middle East and ongoing threat to regional shipping should install some degree of fear premium in prices. If Iran directly enters the clash between Israel and Hamas, crude would likely rally. Wall Street generally sees Brent holding the $80-mark for the first three months of 2024.
But while market conditions ought to limit oil’s downside, they don’t provide much upside either.
Beyond the first quarter, fundamentals stand to fray as a new wave of supplies led by the US arrives and tips global markets back into surplus, IEA figures indicate. Some downbeat noises from China suggest that fuel demand could also come under pressure.
As a result, if Saudi Arabia and its OPEC+ allies want to ensure the $80 floor endures, they’ll need to prolong their latest supply curbs into the second quarter — or perhaps even longer.
Tyler Durden
Thu, 12/28/2023 – 11:11
