The Oil Market Analysis: Gains and Losses Explained

Recap: The oil market on Wednesday extended its gains and settled higher for a fifth consecutive session, only to erase all of its earlier gains in the post settlement period. The sharp sell off followed U.S. President Donald Trump’s statement that killings in Iran were stopping, quelling market concerns of a possible military operation in Iran. In overnight trading, the crude market traded mostly sideways as its gains were limited by the large builds in crude stocks and products stocks reported by the API late Tuesday. However, the market traded higher after the U.S. late Tuesday urged its citizens to leave Iran immediately, while Iran warned U.S. allies in the Middle East it would strike U.S. bases on their soil if the U.S. attacked Iran. Also, the Pentagon advised some personnel to leave a U.S. military base in Qatar, further supporting the market. The crude market traded to $62.10 and traded sideways as it awaited for the release of the EIA’s weekly petroleum stocks report and any further developments in the Middle East. The market remained in a sideways trading range following the release of the inventory report, which showed a build of 3.4 million barrels on the week. The February WTI contract settled up 87 cents at $62.02. However, the crude market later traded to a high of $62.36 before it retraced more than 38% of its move from a low of $55.76 to a high of $62.36 as it sold off to a low of $59.77 in the post settlement period as concerns of a military operation in Iraq dissipated. Meanwhile, the March Brent contract settled up $1.05 at $66.52. The product markets ended the session higher, with the heating oil market settling up 4.35 cents at $2.2819 and the RB market settling up 39 points at $1.8304.

Technical Analysis: The crude market will remain headline driven and will look to any further developments in Iran, as seen during Wednesday’s session. It will remain under pressure if the situation in Iran is improving and the possibility of a U.S. military operation dissipates. The market will also look to any developments in the Russian war in Ukraine after Russia accused Ukraine of attacking an oil tanker in the Black Sea as well as the Venezuelan oil sales. The oil market is seen finding resistance at $62.36, $62.28, $62.59, $62.92, $63.26 followed by $64.19 and $64.97. Meanwhile, support is seen at $59.19, $59.06, $58.45, $58.28, $57.61 followed by $55.97 and $55.76.

Fundamental News: In its monthly report, OPEC forecast world oil demand in 2027 would increase at a similar rate to this year and data in the study indicated a close balance between supply and demand in 2026. OPEC said that demand would increase by 1.34 million bpd in 2027, a similar rate to the growth of 1.38 million bpd expected this year. It reported that OPEC+ crude output averaged 42.83 million bpd in December, down 238,000 bpd on the month. It forecast world demand for OPEC+ crude would average 43 million bpd in 2026, unchanged from a previous forecast, and is expected to average 43.6 million bpd in 2027.

Goldman Sachs is maintaining its forecast of stable Iranian crude production of 3.5 million bpd in 2026 following the Trump administration’s announcement that any country that does business with Iran will be subjected to a tariff rate of 25% on any business conducted with the United States.

IIR Energy said U.S. oil refiners are expected to shut in about 724,000 bpd of capacity in the week ending January 16^th, decreasing available refining capacity by 450,000 bpd. Offline capacity is expected to increase to 1.1 million in the week ending January 23^rd.

Exxon Mobil is preparing to run Venezuelan crude oil at its 522,500 bpd Baton Rouge, Louisiana refinery. The refinery previously ran Venezuelan heavy sour crude, but has not since sanctions were imposed on Venezuela.

Chevron plans to run Venezuelan crude oil at its 356,440 bpd Pascagoula, Mississippi refinery. No date has been set for Venezuelan crude to arrive at the refinery.

Early Market Call – as of 8:30 AM EDT

WTI – Feb $59.33, down $1.72

RBOB – Feb $1.7724, down 4.07 cents

HO – Feb $2.2022, down 5.19 cents

Download Attachment

This market update is provided for information purposes only and is not intended as advice on any transaction nor is it a solicitation to buy or sell commodities. Sprague makes no representations or warranties with respect to the contents of such news, including, without limitation, its accuracy and completeness, and Sprague shall not be responsible for the consequence of reliance upon any opinions, statements, projections and analyses presented herein or for any omission or error in fact. The views expressed in this material are through the period as of the date of this report and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance or results and actual results or developments may differ materially from those projected. The whole or any part of this work may not be reproduced, copied, or transmitted or any of its contents disclosed to third parties without Sprague’s express written consent.