U.S prices were lifted to their highest in eight months

Recap: Oil futures rallied Friday, briefly lifting U.S. prices to their highest in eight months, after a U.S. airstrike in Iraq killed one of Iran’s top military commanders, sparking fears of an escalation of tensions in the Middle East that could disrupt the flow of crude. In early trading, February WTI traded up to a high of $64.09, the highest intraday level for a spot contract since April. Gains were pared, with this spot contract settling at $63.05 a barrel, up $1.87, or 3.1%. For the week, prices added roughly 2.2%. March Brent rose $2.35, or about 3.6%, to $68.60 a barrel after trading as high as $69.50 a barrel. The settlement and intraday levels were the highest since the aftermath of a September attack on Saudi oil infrastructure widely blamed on Iran. For the week, Brent oil rose 2.6%.  February RBOB rose 2.6% to $1.7488 a gallon, while February heating oil added 1.8% to $2.0614 a gallon. Both posted modest gains for the week.

Technical Analysis: Despite Friday’s aggressive move, WTI failed to break out of the long standing range, a strong indication of uncertainty for higher prices. Based on this, we would look for this market to encounter selling pressure up at current levels. Resistance is set at $64.35-$64.64 and above that at $66.60. to the downside, support is set at $62.08 and below that at $61.39.

Fundamental News: The EIA reported that US crude oil stocks fell by the largest amount since June, driven by an increase in US crude exports to more than 4 million bpd for the first time in history.  Crude oil inventories fell by 11.5 million barrels in the week ending December 27th to 429.9 million barrels.  The sharp decline was in part due to increased refining output that increased distillate and gasoline stocks, along with a fall in imports and an increase in exports. 

Baker Hughes reported that the number of rigs searching for oil in the week ending January 3rd fell by 7 to 670. 

Iraq’s Oil Ministry said dozens of US citizens working for foreign oil companies in the southern Iraqi oil city of Basra were preparing to leave the country on Friday after a US air strike killed a top Iranian commander in Iraq.  The US embassy in Baghdad urged all citizens to depart from Iraq immediately, hours after the US killed Iranian Quds Force leader, Qassem Soleimani, and Iraqi militia commander, Abu Mahdi al-Muhandis, in an air strike.  Iraqi officials said the evacuation would not impact operations.  The Oil Ministry said all oilfields across the country were operating normally and production and export was not affected. 

Separately, Iraq’s President, Barham Salih, condemned the US air strike on Baghdad airport that killed the commander of Iran’s Quds force, and urged restraint from all parties. Iran promised harsh revenge on Friday after a US air strike in Baghdad on Friday killed Qassen Soleimani.

US Secretary of State, Mike Pompeo, said the strike aimed to disrupt an “imminent attack” that would have endangered Americans in the Middle East.  He said the US remains committed to de-escalation with Iran but is prepared to defend itself.   

IIR Energy reported that US oil refiners are expected to shut in 121,000 bpd of capacity in the week ending January 3rd, cutting available refining capacity by 49,000 bpd from the previous week. 

Russia’s Energy Ministry said Russia cut its output, excluding gas condensate, by 234,000 bpd in December from a baseline set in October 2018.  It reported that its gas condensate output was up 58,000 bpd. 

Russia has halted oil supplies to refineries in Belarus amid a new contract dispute that is also threatening large Russian oil deliveries to Western Europe crossing the country.  Belarus’ state firm, Belneftekhim said deliveries had been halted as of January 1st. 

Early Market Call - as of 8:50 AM EDT

WTI - Feb $63.84, up 79 cents

RBOB - Feb $1.7704, up 2.16 cents

HO - Feb $2.0620, up 7 points