The Oil Market Continued to Retrace its Previous Losses on Tuesday

Recap: The oil market continued to retrace its previous losses on Tuesday, extending the gains seen on Monday after it posted a low not seen since December 12th. The market gapped higher on the opening from $74.51 to $74.57 but quickly backfilled the gap as it posted a low of $74.35. The market bounced off that level and continued on its upward trend, driven by optimism over recovering demand in China and concerns over supply shortages following the shutdown of the Baku-Tblisi-Ceyhan terminal after a major earthquake hit Turkey and Syria. The market held some resistance at the $76.00 level in overnight trading. However, the market breached that level and rallied higher throughout the session. The market retraced nearly 50% of its move from a low of $72.25 to a high of $82.48 as it extended its gains to over $3.20 and posted a high of $77.35 ahead of the close. The market was well supported as the head of the U.S. Federal Reserve eased market concerns over interest rate hikes. Fed Chair, Jerome Powell, said that very strong jobs data released on Friday affirmed that the central bank has some way to go on raising rates. The March WTI contract settled up $2.92 at $77.14, while the April Brent contract settled up $2.70 at $83.69. The WTI contract continued on its upward trend post settlement and rallied to a high of $77.41. The product markets also settled sharply higher, with the heating oil market settling up 13.57 cents at $2.9044 and the RB market settling up 8.34 cents at $2.4568.

Market Analysis:  The oil market is seen trading sideways ahead of the release of the weekly petroleum stocks reports, which are expected to show builds across the board, with a build of about 2.5 million barrels in crude stocks. The market will also look for further direction from Fed Chair Jerome Powell’s speech on Wednesday. The market is seen finding resistance at $78.00, $78.57, its 62% retracement level, and $79.73. Meanwhile, support is seen at $75.31, its low of $74.35, $72.25 and $70.41.

Fundamental News:  The EIA stated in its Short Term Energy Outlook, that world petroleum demand is forecast to increase by 1.11 million bpd to 100.47 million bpd in 2023 and by 1.79 million bpd to 102.26 million bpd in 2024. Meanwhile, total world production is estimated to increase by 1.15 million bpd to 101.1 million bpd in 2022 and by 1.51 million bpd in 2023 to 102.61 million bpd. Total OPEC oil output is expected to fall by 10,000 bpd to 28.66 million bpd in 2023 and increase by 650,000 bpd to 29.31 million bpd in 2024. The EIA forecast that U.S. oil consumption in 2023 if forecast to fall by 30,000 bpd to 20.27 million bpd but increase by 290,000 bpd to 20.56 million bpd in 2024. U.S. gasoline demand is forecast to fall by 20,000 bpd to 8.76 million bpd in 2023 and fall by 30,000 bpd to 8.73 million bpd in 2024. U.S. distillate demand if estimated to fall by 60,000 bpd to 3.91 million bpd in 2023 but increase by 40,000 bpd to 3.95 million bpd in 2024. The EIA also reported that U.S. oil production in 2023 is forecast to increase by 590,000 bpd to 12.49 million bpd and increase by 160,000 bpd to 12.65 million bpd in 2024. The EIA increased its 2023 forecasts for WTI and Brent crude oil. It lifted its 2023 WTI price forecast by 0.9% to $77.84/gallon and its Brent crude oil is expected to average $83.63/gallon this year, up 0.6% from its previous forecast.

A Turkish energy official said oil began to be pumped on the Kirkuk-Ceyhan pipeline from Iraq to Turkey on Tuesday, after it was halted due to massive earthquakes that struck southeastern Turkey on Monday. Later, an Iraqi oil source said Iraq resumed crude oil flows on its export pipeline to the Turkish port of Ceyhan on Tuesday evening while a tanker docked to load crude. Bad weather earlier in the day prevented loading. The Vallesina tanker was shown at a jetty at the Botas Ceyhan terminal on Tuesday evening. A trading source said the vessel was given the all clear to load Iraqi oil from storage. While Iraqi crude flows and exports resumed, exports of Azeri crude were still halted. The BTC terminal is not expected to resume until February 8th or 9th as damage at the terminal was being assessed.

Early Market Call - as of 8:25 AM EDT

WTI - March $77.72, up 58 cents

RBOB - March $2.4658, up 90 points