CRUDE OIL

• Crude oil inventories decreased by 7.1 MMBbl last week according to the EIA. Gasoline and distillate inventories increased by 8.3 MMBbl and 10.1 MMBbl respectively. Total petroleum inventories posted a build of 6.1 MMBbl. The withdrawal in crude oil stocks was largely due to the lower imports (down 984 MBbl/d). Being the last week of the year, unexpected inventory report results can be expected, as tax strategies may incentivize newly arriving cargoes to remain on the water to avoid taxation onshore. Regardless, the decrease in crude oil inventories was larger than analyst expectations, which initially sent a bullish signal to the market. However, the withdrawal in crude oil was more than offset by the sizeable refined product builds, leading to a reversal of the bullish sentiment.
• WTI prices have remained rangebound at the $50-55/Bbl levels since the OPEC announcement of a production cut. Now, the market waits for data regarding compliance with the cuts to move out of the range:
• Bullish news of OPEC members discussing lower cargo loadings with their customers in the new year have boosted expectations that the quotas will be adhered to, at least in the early months. A Reuters survey showed that OPEC supply fell in December to 34.18 MMBbl/d from 34.38 MMBbl/d the prior month. The largest decline came from Nigeria due to an attack on pipeline infrastructure. Sources in Saudi Arabia have echoed that production was down to 10.06 MMBbl/d in January, which would mean that the largest OPEC producer was complying with its quotas. Adherence to the quotas, at least to some degree is expected by the market, as prices tested the high end of the range this week on the bullish news regarding the cuts. Data that will confirm or deny compliance with quotas will not be known until late January.
• Periodic bearish news and lack of information regarding the success or failure of the anticipated OPEC cuts has limited upward price movement in recent weeks. WTI ran into selling from both the commercial short and the managed money sector after testing the $55/Bbl level as per the most recent CFTC report. News of higher production from Libya (who was completely exempted from the quotas along with Nigeria) continue to work against the goal of the production cut by OPEC. The continuously rising rig count in the US also underlines the ability of shale produc...
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