Another draw in crude stocks this week had futures moving higher. Interesting to note that stocks are now below the three year average for crude and products and if maintained, will help keep prices at higher levels. Reuters reporting that Canada thinks U.S. will pull out of NAFTA, which could be impactful on currencies in the region. As WTI prices seem intent to stay over the $60 level, it is increasingly important to understand budget and target levels for 2018 and beyond and be ready to hedge to protect those levels.
Refinery operating rates were down 1.4% this week at 95.3%. Imports were down for crude and gasoline, but up for distillates. Apparent demand for products was up this week.
Oil prices are set for fourth straight week of gains: Oil prices eased from three-year highs on Friday but were still on track to end the week higher. Brent crude futures traded 15 cents lower at $68.90 a barrel at 8:00 am cst. The contract broke above $70 a bbl on Thursday for the first time since December 2014. U.S. WTI crude futures were at $63.25 a barrel, down 55 cents. WTI the day before rose to its strongest since late 2014 at $64.77.
Oil futures jumped out to levels not seen in more than three years on Thursday, but a pullback from those highs that started yesterday afternoon has continued into this morning’s trading. The pull back is nominal and WTI and Brent are still well within striking distance of those highs, but recent sustained rally has given market players the opportunity for some profit taking. Feb’18 WTI has bounced back from a low of $63.08 overnight as the contract was trading near $63.50/bbl leve, down about 25-cents. Refined product futures are also trading lower, though losses there are light as both RBOB and ULSD are down around 0.5-cent. At the moment, front-month RBOB is trading near $1.83 and Feb ULSD/HO trading near $2.07.
WTI prices gained some momentum yesterday as traders kept watch over President Trump’s anticipated decision regarding whether or not to extend temporary relief on sanctions against Iran. This decision is expected to occur sometime this week. Most traders expect that that he will extend the temporary waivers, despite his assertion that the Iran deal is the “worst the United States ever entered into.” However, many market players have “their finger over the ‘buy’ button if he does not,” as stated by one market analyst on Thursday. Reinforcement of the sanctions could possibly mean a disruption in Iran’s oil exports, which would signal yet another boon for prices. Iran has been facing anti-government protests in recent weeks, but they have not had any tangible impact on oil production thus far.
Another main catalyst for the latest move higher is a growing view that the global oil market is returning to normal supply and demand balances with inventories well on their way to returning to the historical normal or 5 year average. An expanding global economy is contributing to an above expected growth in oil consumption. With OPEC still cutting production and Venezuelan production in decline the growth of US production is easily being absorbed with crude oil inventories still in a destocking pattern. A major Wall Street firm forecast that Venezuelan oil production could fall sharply over the near future due to their economic and political problems was probably overpriced in the spike up move earlier this week.
Some analyst are warning that $70 Brent crude oil pricing has discouraged Asian buyers, the markets were also confronted with news that Chinese crude oil imports in December came in lower than November at 33.7 million metric tons versus a prior total of 37mmt.
Fortunately for the bull camp there continues to be signs of strong demand reaching out as far as March, the US dollar is facilitating US oil export interest and the overall macroeconomic environment is supportive of oil prices. However, some in the market felt that Brent crude prices climbing to $70 for the first time since late 2014 may have encouraged some longs to take profits in fron of the holiday weekend. The slight bearish shift in Chinese demand views should put additional emphasis on the latest Baker-Hughes oil rig count released at midday. However, the rig count has not seen an uptick in the last four weekly readings and it remains at its lowest level since mid-November.
Oil prices have recovered from their 2014 nadir, as evidenced by the fact that after years of painfully low prices for energy producers, oil prices at the Brent crude global oil benchmark are now well over $60, briefly reaching $67.84 a barrel recently for a three-year high. Of course this is a far cry from the days when market pressure had forced the price of oil to over $100 a barrel, but it marks a return to market balance, allowing sellers to rid themselves of the excess oil inventories which they had accumulated since the dark days of 2014.