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Crude oil futures (NYMEX:CLG14) are struggling to stay in positive territory after a mixed API inventory report issued last evening. The API reported a much larger than expected draw in crude oil, but with larger than expected builds in both gasoline and distillate fuel. With crude oil builds likely to come across the month of January, the market is once again discounting most of the API draw in crude oil. We will have to see how the market reacts if the EIA reports a similar magnitude draw in crude oil later this morning.
On the other end, Libyan production is increasing with exports out of Zawiya resuming as early as the second half of this week. On one hand, crude oil stocks have been declining in the U.S. and now some Libyan oil is returning to the market. Overall it should be bearish for the Brent/WTI spread but adding to the mix was a large build in Cushing stocks of 1.2 million barrels this week offsetting the overall draw in crude oil in the U.S. and the restart of some Libyan production.
The market remains in a battle and likely to trade in a tight range over the next week or so. I would expect the spot WTI contract to settle into a $92/bbl to $95/bbl trading range with the spot Brent contract in a $106/bbl to $109/bbl range. I do not expect any major moves in either direction in the short term. Certainly any further flare up of the ongoing geopolitical events in the MENA region (especially in Iraq) will send prices higher while a crude oil restocking pattern in the U.S. will act as a downside catalyst.
Next week’s report should show a sizeable draw in distillate fuel oil stocks as the arctic blast has settled into the East Coast and will remain for another day or so. Heating fuel demand will be way above normal this week. Also there have been a fair amount of refinery issues because of the cold temperatures, which will result in a reduction in refinery utilization rates this week as well as in production of gasoline and distillate fuel. It also will reduce demand for crude oil contributing to a potential build in crude oil stocks and draw in refined products in next week’s report.