Recap: Oil futures closed higher for the fourth straight session on strong U.S. economic data, falling inventories and the OPEC+ decision to adhere to output cuts however, gains were limited by strength in the U.S. dollar. Strong U.S. factory data along with improvements in the unemployment number helped to prop up prices. March WTI added 54 cents, or 1%, to settle at $56.23 a barrel. Based upon the front-month contracts, prices were up for a fourth consecutive session and settled at their highest since Jan. 22, 2020. April Brent settled at $58.84 a barrel, up 38 cents, or 0.65%. March RBOB slipped .0038, to settle at $1.6448 a gallon, while March heating oil added .0100, to settle at $1.7005 a gallon.
Technical Analysis: The upside for oil markets is gaining momentum, as tightening supplies, strict compliance to output cuts by OPEC+, and positive economic news out of the U.S. helped boost oil prices. March WTI came back to test the $55 and bounced right back above it. It is crucial that prices hold above this level, so time will tell as to whether or not this was the technical pullback bulls needed, or a significant pullback, indicating that this market is not ready to move ahead. We would like to see a settlement above $56.30 and then a push toward $57 before we can feel confident that this market is ready to move forward. Above $57, there is resistance set at $57.40, with support below $55 set at $54.06, the current 10-day moving average
Fundamental News: Data intelligence firm Kpler estimates that floating storage of crude and condensate stood at 113.60 million barrels in Asia at the start of this week. Around 63% of this storage is sitting offshore of China, Singapore, Malaysia and Indonesia. Most industry watchers though expect these storage levels will trend lower as the market price structure continues to be backwardated and the market gets on the other side of the Chinese New Lunar Year holiday. Floating stocks had fallen to an eleven month low of 85 million barrels in early January after they had peaked at over 210 million barrels in late June.
Last year, some oil producers made a bet that is set to pay off as prices rise. The decision was to enter 2021 with minimal, and in some cases zero hedge contracts and to maintain their exposure to oil prices. However, not all producers did this. About 28 of 50 firms tracked in BNEF’s Hedging Database are expected to lose money on hedges reported in third quarter 2020 filings. Hedge books have lost a combined $5 billion in value in just three months, with 18 firms losing more than $100 million.
The Department of Transportation reported that vehicle miles traveled on U.S. highways increased by 2.3% on the week to 13.4 billion miles in the week ending January 31st.
The International Air Transport Association reported this week that passenger air traffic globally declined 66% in 2020 and warned the near term outlook is one of continuing stagnation. Platts noted that global air traffic is currently declining and being led by a noticeable drop in Chinese domestic flights, with particular weakness still in Europe, the UK and Japan.
The head of commodities research at Goldman Sachs said a commodities bull market supercycle could be on the horizon. He said President Biden’s policy priorities will contribute to a boom in oil price and other industrial commodities.
Early Market Call – as of 8:30 AM EDT
WTI – Mar $56.69, up 46 cents
RBOB – Mar $1.6559, up 1.11 cents
HO – Mar $1.7240, up 2.35 cents
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