Oil prices under pressure as crude inventories rise

U.S. West Texas Intermediate crude oil futures came under pressure on Friday amid unexpected increases in U.S. crude and fuel inventories, according to a government report released in the previous session. Profit taking ahead of the weekend and next week’s Fed meeting are also responsible for the weakness.

Additionally, we are likely to see some hedge fund selling due to margin calls triggered by the sharp selloff in US equity markets.

EIA reports first U.S. crude oil production since November, gasoline inventories hit 11-month high

U.S. crude oil inventories rose last week for the first time since November, while gasoline inventories hit their highest level in 11 months, the Energy Information Administration (EIA) said Thursday.

Crude inventories rose 515,000 barrels in the week to Jan. 14 to 413.8 million barrels, while analysts had expected a drop of 938,000 barrels in a Reuters poll.

Refinery crude volumes fell 120,000 bpd to 15.45 million bpd and utilization rates fell 0.3 percentage points to 88.1% of total capacity last week, the report said. ‘EIA. Additionally, net imports of U.S. crude rose last week by 21,000 bpd, the data showed.

U.S. gasoline inventories rose 5.9 million barrels during the week to 246.6 million barrels, the EIA said, compared with an expected rise of 2.6 million barrels.

Distillate inventories, which include diesel and fuel oil, fell 1.4 million barrels last week to 128 million barrels.

Finally,…

U.S. West Texas Intermediate crude oil futures came under pressure on Friday amid unexpected increases in U.S. crude and fuel inventories, according to a government report released in the previous session. Profit taking ahead of the weekend and next week’s Fed meeting are also responsible for the weakness.

Additionally, we are likely to see some hedge fund selling due to margin calls triggered by the sharp selloff in US equity markets.

EIA reports first U.S. crude oil production since November, gasoline inventories hit 11-month high

U.S. crude oil inventories rose last week for the first time since November, while gasoline inventories hit their highest level in 11 months, the Energy Information Administration (EIA) said Thursday.

Crude inventories rose 515,000 barrels in the week to Jan. 14 to 413.8 million barrels, while analysts had expected a drop of 938,000 barrels in a Reuters poll.

Refinery crude volumes fell 120,000 bpd to 15.45 million bpd and utilization rates fell 0.3 percentage points to 88.1% of total capacity last week, the report said. ‘EIA. Additionally, net imports of U.S. crude rose last week by 21,000 bpd, the data showed.

U.S. gasoline inventories rose 5.9 million barrels during the week to 246.6 million barrels, the EIA said, compared with an expected rise of 2.6 million barrels.

Distillate inventories, which include diesel and fuel oil, fell 1.4 million barrels last week to 128 million barrels.

Finally, inventories in Cushing, Oklahoma, a delivery hub for U.S. crude futures, fell 1.3 million barrels last week, the EIA said.

Supply problems drive up prices

Supply issues pushed U.S. West Texas Intermediate and international benchmark Brent crude oil futures higher early in the week. Prices were supported by an already tight supply outlook amid troubling geopolitical issues in Russia and the United Arab Emirates (UAE). Traders responded to a breakdown on a pipeline linking Iraq to Turkey.

Price Setting up to challenge $100

U.S. WTI and Brent crude oil futures look set to challenge $100 a barrel this year, with or without the current supply issues. Indeed, there is a significant supply shortfall and the impact of the Omicron coronavirus variant on demand is much less than expected.

That notion is backed by analysts at Goldman Sachs who said on Tuesday that supply remained in a “surprisingly large shortfall.”

Analysts also wrote that Omicron’s demand impact will likely be offset by gas-oil substitution, increased supply distributions, OPEC+ shortfalls and disappointing production in Brazil and Norway.

Goldman analysts said global oil demand is expected to rise 3.5 million barrels per day (bpd) year-over-year in 2022, with fourth-quarter demand reaching 101.6 million bpd.

Goldman expects QECD stocks to fall to their lowest level since 2000 by summer, and OPEC+ spare capacity to drop to historic lows, given the lack of drilling in the the heart of OPEC and Russia which is struggling to increase its production.

“We expect the OPEC+ production increase to be even further below quota in 2022, with a production increase of just 2.5 million bpd expected over the next nine increases.”

Additionally, higher prices will allow OPEC to slightly lag behind its monthly ramp-up trajectory to preserve spare capacity, with accelerating shale production growth providing a much-needed buffer of inventory. , Goldman added.

Weekly technical analysis

March WTI Crude Oil Weekly

Analysis of trend indicators

The main trend is up according to the weekly swing chart. The uptrend was reaffirmed this week as buyers took $83.79, reaching a new contract high in the process. A move to $62.05 will alter the main downtrend.

The small trend is up. It changed for the weekend of December 24 when buyers pulled out the minor high at $72.82. This shifted the momentum up. A trade at $65.93 will change the minor downtrend.

Retracement level analysis

The market is currently trading on the strong side of a minor 50% level at $76.52 and the major 50% level at $74.58, making these two levels supportive.

Weekly Technical Forecast

The direction of the March WTI Crude Oil market the week ending Jan. 28 will be determined by the reaction of traders at $83.30.

Bullish scenario

A sustained move above $83.30 will indicate the presence of buyers. If this move is able to continue to generate sufficient bullish momentum, look for a near-term test of $87.10-$88.18. Removing $88.18 could trigger a possible rise to $92.38 in the near term.

Downside scenario

Failure to sustain a rally above $83.30 will indicate the presence of sellers. This won’t be a particularly bearish signal, but it may mean that buyers view the market as overvalued at current price levels. This would encourage buyers to take profits. This could drive the market into a value zone or $76.52-$74.58 where new buyers would likely reappear.

Short-term outlook

Price action over the weekend suggests traders have priced in value, which means the market is overvalued. This could encourage profit taking.

If this continues next week, we will likely see a pullback towards the former high at $80.72. Buyers are likely to participate in the first test of this level.

Breaking $80.72 will be a sign of weakness. This also means that traders who bought the breakout above this level during the week ending January 14 are holding losing positions.

If these buyers are scared enough by some news, then they might start to liquidate their positions. If the sell off gets lousy, expect the move back up to $76.52-$74.58. We expect to see strong buying on a pullback in this zone.

Although there are forecasts calling for $100 a barrel of crude, the fine print indicates that this will likely happen in the second half of the year. Therefore, any rally up to $88.18 and up to $92.38 at this time of year will likely be met with further shorting.

Basically, all eyes should be on the January 26 Federal Reserve monetary policy announcements and the Russian-Ukrainian situation.

Traders also need to keep an eye on the stock market. If it continues to weaken, we may start to see margin calls selling Crude Oil, which will put further pressure on prices.


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Felix J. Dixon