Recap: Oil prices continued to decline as the dollar gained and optimism over output cuts began to wane. February WTI fell to its lowest level in 5 weeks, slipping $1.14, or 2.19%, to settle at $50.82 a barrel. Brent for March delivery settled at $53.64 a barrel, down $1.30, or 2.37%.
Back in November we made mention of the Dec17/Dec18 WTI spread, which traded in backwardation for the first time since 2014. The breakout point for this spread was -$1.00. Today, it settled back in contango market conditions, having finished at -$0.37. With OPEC and non-OPEC producers agreeing to cut back on output for the first six-months of 2017 this spread could very easily rebound, as such cuts will leave a shortfall going forward. Adding pressure to the deferred contract is a report by the U.S. Energy Information Administration calling for an end to the nearly two-year stretch of overall declining U.S. oil production. The EIA has forecasted production will rise year-on-year for 2018. Based on this, we would look to buy the Dec17, sell the Dec18 WTI down around the aforementioned breakout point of -$1.00.
February RBOB fell 2.4 cents, or 1.5%, to settle at $1.547 a gallon, while February heating oil fell 2.6 cents, or 1.6%, to settle at $1.611 a gallon.
Fundamental News: The EIA, in its Short Term Energy Outlook, raised its 2017 world oil demand growth forecast by 70,000 bpd from its previous estimate to 1.63 million bpd. It said world oil demand in 2018 is expected to reach 98.71 million bpd, up 1.51 million bpd from 2017. OPEC's oil production increased by 330,000 bpd to 33.22 million bpd in 2017 and by 510,000 bpd to 33.73 million bpd in 2018. Meanwhile, US oil demand for 2017 is forecast to increase by 260,000 bpd compared with 240,000 bpd growth forecast previously. US oil demand for 2018 is set to increase by 370,000 bpd to 20.22 million bpd.
Kuwait's Oil Minister, Essam Al-Marzouk, said OPEC and its partners will fulfill their implementation of a deal to cut output.
Saudi Aramco notified some Asian customers that they will get less crude in February. It was exploring cuts of 3-7% in February crude loadings. In January, Saudi Aramco mainly cut supplies to customers in Europe and the US.
Russia has reduced its output by 130,000 bpd in the first few days of January, about a third of the way towards the total cut Russia promised to deliver by mid-2017. The reduction is not the result of its desire to comply with the agreement but the cold temperatures in Siberia that have forced work at oil rigs to come to a halt. Late last month and in early January, temperatures fell as low as minus 60 degrees Celsius or minus 76 degrees Fahrenheit across Siberia. The cold weather has also prevented maintenance and repair work at oilfields and the drilling of new wells.
Kremlin spokesman, Dmitry Peskov, said Russia is fulfilling all of its obligations under a deal between OPEC and non-OPEC exporters to cut output.
Senior energy officials stated that Iraq will likely pursue scheduled field maintenance to temporarily reduce oil production to meet obligations of the OPEC and non-OPEC agreement. Separately, Iraq's Oil Ministry reported that the country has cut production by 160,000 bpd since the beginning of January in line with an OPEC decision to cut output. Iraq's Oil Minister, Jabar Ali al-Luaibi, said he hoped that by the end of the month production would be cut by 210,000 bpd.
Nigerian oil workers have started strike action at its Oleh crude flow station in Delta State. They started a strike in protest over non-payment. Separately, Nigeria's blue-collar oil union plans a three day strike at fuel depots run by local units of Chevron and Exxon Mobil to protest job cuts. The strike will begin on January 11th ahead of talks on the same day between union leaders, oil company executives and the government.
Early Market Call - as of 9:50 AM EDT
WTI - Feb $51.41, up 60 cents
RBOB - Feb $1.5766, up 2.99 cents
HO - Feb $1.6346, up 2.32 cents
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