The EIA reported that U.S crude oil inventories rose by 3.5 million barrels

Recap: After spiking in January in response to the U.S. drone attack that killed Iran’s top military agent, oil prices slid a painful 15%, the biggest January slide since 1991, as the coronavirus, which originated in China, spreads global fears of a slowdown in economic growth. Adding to the pressure on oil prices was larger than expected builds in U.S. crude oil inventories, which according to the EIA rose by 3.5 million barrels in the week ending January 24. However, crude oil has found some support given the current supply situation and demand outlook, as OPEC could extend oil output cuts. OPEC and Russia have been trying to stabilize prices through production. WTI for March delivery fell by 58 cents, or 1.11, to $51.56 a barrel, the lowest spot month settlement since Aug 7. This represents a weekly loss of 4.9%. March Brent went off the board at $58.16 a barrel, down 13 cents, or 0.2%, for a weekly loss of 4.2%. The April contract, the new spot shed 44 cents, or 0.8%, to $56.89 a barrel. February RBOB lost 0.3% to $1.4887 a gallon, with prices down over 12% for the month. February heating oil fell 0.9% to $1.6245 a gallon, for a monthly loss of nearly 20%—the largest since March 2015 and lowest settlement since August 2017. The February contracts expired at the day’s settlement.

Technical Analysis: Crude oil prices fell sharply on the week, as it tested key support. While this market will continue to encounter support, demand concern will continue to rear its ugly head. Based upon previous performance, we expect this market to continue to encounter support at current levels. Support is set at $51.00  below that at $50.00. Resistance is set at $53.30 and above that at $54.29.

Fundamental News: Baker Hughes reported that US energy firms reduced the number of oil rigs operating for the first time in three week as producers follow through on plans to cut spending on new drilling.  Energy companies cut the number of oil rigs by 1 in the week ending January, bringing the total count down to 675. 

The EIA reported that US crude oil production increased by 203,000 bpd to a record high of 12.9 million bpd in November. 

OPEC’s oil output fell in January to a multi-year low as Saudi Arabia and other Gulf members exceeded their pledged output cuts in January.  On average, OPEC’s total oil output stood at 28.35 million bpd in January.  The ten OPEC members bound by the agreement cut their production to 24.76 million bpd in January from 25.04 million bpd in December.  They complied with 133% of the pledged cuts in January.  Saudi Arabia’s oil output in January fell to 9.72 million bpd from 9.8 million bpd in December. 

Russia’s Energy Minister, Alexander Novak, said that OPEC+ countries may react if there are significant consequences to the oil market due to the outbreak of coronavirus.  He said that the oil producing countries have discussed bringing forward the March OPEC+ meeting, adding that they need several more days to monitor the situation.

Royal Dutch Shell’s Nigerian subsidiary SPDC lifted a force majeure on Bonny Light crude exports on Friday morning.  It had been in effect since January 20th, following the shutdown of the Nembe Creek Trunk Line and declaration of a force majeure by the pipeline’s operator, Aiteo.  The operator announced the completion of repairs on Tuesday.

IIR Energy reported that US oil refiners are expected to shut in 641,000 bpd of capacity in the week ending January 31st, increasing available refining capacity by 442,000 bpd from the previous week.  It also expects offline capacity to increase to 734,000 bpd in the week ending February 7th and fall to 567,000 bpd in the subsequent week.

Early Market Call - as of 8:35 AM EDT

WTI - Mar $51.14 down 42 cents

RBOB - Mar $1.4908 down 1.33 cents

HO - Mar $1.6057 down 2.27 cents