Oil futures rose after EIA showed draws in U.S. inventories

Recap:  Oil futures rose sharply on Wednesday after the EIA showed draws across the board in U.S. inventories. While inventories for crude oil showed a smaller than expected decline, stockpiles for gasoline and distillates fell more than expected, raising trader’s hopes that demand is slowly returning. Adding support to the market was a weak dollar and favorable geopolitical developments which appear to be clearing roadblocks that have been snarling demand. February WTI added $1.10, or 2.3%, to settle at $48.12 a barrel, following Tuesday’s 2% drop. February Brent closed up $1.12, or 2.2%, to settle at $51.20 a barrel. WTI is on track for a weekly slide of 2.5%, while Brent is on track for a weekly decline of 2.1%. January RBOB added 4.25 cents, or 3.2%, to settle at $1.3820 a gallon, while January heating oil tacked on 3.59 cents, or 2.5%, to close at $1.4975 a gallon.

Technical Analysis:  WTI pulled back early in the session, only to find buyers underneath. At this point, traders seem determined to get this market up to the psychological resistance level of $50, so we would expect to see buyers underneath. WTI remains in an uptrend, with a trade above $49.43 needed for the uptrend to resume. A trade below $45.20 will shift the short term trend to the downside, with a break below $44.17, shifting the major trend to the downside. We would keep a close on the dollar, which has recently fallen, supporting dollar denominated commodities.  

Fundamental News:  U.S. energy firms this week added oil and natural gas rigs for a fifth consecutive week.  Baker Hughes reported that the oil and gas rig count increased by 2 to 348 in the week ending December 23rd.  U.S. oil rigs increased to 264 this week, the highest since mid-May, while gas rigs increased to 83, the highest since the end of April. 

IIR Energy reported that U.S. oil refiners are expected to shut in 3.8 million bpd of capacity in the week ending December 25th, increasing available refining capacity by 316,000 bpd from the previous week.  Offline capacity is expected to fall to 3.6 million bpd in the week ending January 1, 2021.

Mexico's Energy Ministry has approved a 60-day extension for talks between Pemex and a private consortium led by U.S.-based Talos Energy Inc over the future of a shared crude deposit. Mexico’s Energy Ministry has agreed to let the parties continue negotiating through March 25th, which would determine who operates the project as well as a preliminary split of the reservoir, among other development details.

On Wednesday, the U.S. faced the prospect of a year-end government shutdown after President Donald Trump threatened to not sign an $892 billion coronavirus relief bill, saying it should be amended to increase the amount in the stimulus checks.  U.S. government operations are being funded on a temporary basis through December 28th, waiting for the $1.4 trillion in federal spending for fiscal 2021 that is also part of the bill.  Failure to either pass another stopgap bill or override a possible Trump veto of the legislation could result in a partial government shutdown. The U.S. House of Representatives and the Senate both passed the legislation overwhelmingly on Monday night.  President Trump said he wants Congress to increase the amount in the stimulus checks to $2,000 for individuals or $4,000 for couples, instead of $600 for individuals that is in the bill.  President Trump did not say whether he would actually veto the legislation.  Meanwhile, House Speaker, Nancy Pelosi, said the House could vote to increase those payments on Thursday if House Republican Leader, Kevin McCarthy, agreed to do so. 

Early Market Call – as of 8:45 AM EDT
WTI – Feb $47.77, down 35 cents
RBOB – Jan $1.3724, down 96 points
HO – Jan $1.4869,  down 1.06 cents
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