Oil Price Digest 19-Jan-17

Crude Oil

Crude prices underwent a massive correction yesterday. Brent lost $ 1.55 to settle at $ 53.92/bbl while WTI lost $1.40 to settle at $ 51.08 / bbl

The major reason for the correction was given as a report published by the EIA suggesting that US Shale Oil production was set to significantly increase in February.

Another reason given was the strengthening of the US Dollar. This is arguable as the EUR was trading at 1.0695 in the US morning and is trading at 1.0635 currently.

A third reason was reported in Bloomberg as a complicated Option strategy betting on the spread between WTI and Brent returning to positive territory due to the levying of an import duty on crude oil.

Later in the day, API reported a draw of 5.04 million barrels in crude oil stocks against an expected small build.  While this number should be extremely bullish, it will be tempered by the fact that Gasoline inventories rose by 9.8 million barrels and distillates by 1.2 million barrels.  All this happened as capacity utilization dropped by 2%.  This shows an extremely bleak scenario for product demand.

Traders will look to the DOE data for confirmation of this trend. The current estimates are

Crude             :        – 0.3 million barrels

Gasoline         :      + 2.0 million barrels

Distillates       :      +0.2 million barrels

Naphtha