CRUDE OIL
Inventory levels for crude oil increased 2.3 MMBbl last week as reported by the EIA. The gasoline and distillate inventories decreased by 1.3 MMBbl and 2.4 MMBbl respectively. Total petroleum inventories showed a substantial decline of 11.9 MMBbl. The larger than anticipated crude oil inventory build was mainly due to increased imports (up 1.1 MMBbl/d), which averaged 8.5 MMBbl/d. The higher than anticipated crude oil build was bearish, but those gains were offset by the bullish gasoline and distillate withdrawals, supporting price during the low volume holiday trade.
WTI price action remained in the $50-$55/Bbl range since the OPEC release. With the expiration of the January contract last week and the holidays, crude oil had one of its calmer weeks recently as market participants closed open positions. The commercial short position (producer hedges) is running 53.5% of total open interest currently, according to the CFTC report, signaling that producers are eager to take advantage of the recent uptick in prices.
The market continued to weigh bullish and bearish news last week.
Bullish: Saudi Arabia, Kuwait, and UAE notified customers that they will be cutting supply in January to fulfill the quotas.
Bullish: Russia said that the country’s oil companies have agreed to reduce output collectively sending a signal that they are working towards a successful reduction of their supply as per the joint OPEC and non-OPEC agreement.
Bullish: The IEA revised their demand forecast higher by 200 MBbl/d due to revisions to Chinese and Russian consumption numbers.
Bearish: Baker Hughes reported 16 additional rigs were added to the domestic fleet. As long as prices on the 2017 forward curve remain in the $50-$55/Bbl range, expect shale producers to expand production programs.
Bearish: Iraq has signed new deals with Asian customers despite their commitment to reduce output.
Bearish: Libya, which has been exempted from the OPEC quotas, is close to increasing output by 270 MBbl/d after a pipeline that connects major oilfields was put back in service. Libya, which had recently doubled output to 600 MBbl/d, has previously demonstrated its ability to ramp production up to as high as 1.2 MMBbl/d.
Hopes of a successful OPEC and non-OPEC output cut have provided a floor for WTI. Meanwhile, U...
