U.S. inventory numbers are expected to show a decline in crude oil stockpiles and a build in refined products

Recap: Oil futures mostly lower on Tuesday, as the number of rising COVID-19 cases overshadowed optimism tied to a number of vaccines, which are already being administered in the UK. Despite the recent rise in oil prices, the spread of the virus has led to renewed lockdowns, causing traders to shift focus back to demand. Investors are also keeping a close eye on U.S. lawmakers and their efforts, or lack thereof, to roll out another economic stimulus package. All this comes ahead of U.S. inventory numbers, which are expected to show a decline in crude oil stockpiles and a build in refined products. January WTI slipped 16 cents, or 0.4%, to settle at $45.60 a barrel, while February Brent added 5 cents, or 0.1%, to settle at $48.84 a barrel. January RBOB finished near unchanged, at $1.2559 a gallon, while January heating oil added 0.5%, to settle at $1.4067 a gallon.

Market Outlook: WTI is hovering around the $45 area, where there appears to be quite a bit of support. On the way up, this market has been gaining quite a bit of support focusing around the 200-day moving average, which is currently set at $43.87. Also limiting a move to the downside is strong demand for crude oil and products out of Asia, where an economic recovery appears to be underway and the pandemic seems to be under better control then the rest of the globe. Although a bit of a pullback should be expected, buyers will be lurking underneath, waiting to snap up contracts down around the $43.50 area. We are still looking for a push toward $50, where we would reevaluate our stance.  

Fundamental News: In its Short Term Energy Outlook, the EIA estimates that the world consumed 95.6 million bpd of petroleum and liquid fuels in November, which is down 6.3 million bpd on the year but up from the third quarter 2020 average of 93.5 million bpd.  The EIA forecasts that global consumption of petroleum and liquid fuels will average 92.4 million bpd for all of 2020, which is down by 8.8 million bpd from 2019 before increasing by 5.8 million bpd to 98.16 million bpd in 2021.  Global oil production in 2020 is expected to fall by 6.36 million barrels to 94.25 million bpd but increase by 3.17 million barrels to 97.42 million bpd in 2021.  OPEC’s oil production is expected to fall by 3.67 million bpd to 25.6 million bpd in 2020 but increase by 1.94 million bpd to 27.54 million bpd in 2021.  Total world oil inventories is expected to increase by 40 million barrels to 1.322 billion barrels in 2020 but fall by 21 million barrels to 1.301 billion barrels.  The EIA reported that U.S. petroleum demand is expected to fall by 2.38 million bpd to 18.16 million bpd in 2020 but increase by 1.63 million bpd to 19.79 million bpd in 2021.  Gasoline demand is expected to fall by 1.22 million bpd to 8.09 million bpd in 2020 but increase by 670,000 bpd to 8.76 million bpd in 2021.  Distillate demand is expected to fall by 310,000 bpd to 3.79 million bpd in 2020 but increase by 200,000 bpd to 3.99 million bpd in 2021.  U.S. oil production in 2020 is estimated to fall by 90,000 bpd to 11.34 million bpd and by 240,000 bpd to 11.1 million bpd in 2021.  In regards to prices, the EIA estimated that Brent prices will average $49/barrel in 2021, up from an expected average of $43.barrel in the fourth quarter of 2020.   

Russia’s President, Vladimir Putin, will hold a government meeting on Wednesday and may discuss the OPEC+ oil deal. 

Abu Dhabi National Oil Company has informed some term buyers that it will reduce the contractual volume of crude loading in January.  The supply of its flagship Murban crude grade will be reduced by 20%, while the volume of two other grades, Upper Zakum and Das, will be cut by 15%.  ADNOC will also cut the supply of the Umm Lulu crude grade by 5% in January.

According to a monthly report by Petroleum Equipment & Services Association, the U.S. oilfield services sector lost 91,860 jobs due to pandemic-related oil demand destruction. 

Early Market Call – as of 8:40 AM EDT

WTI – Jan $45.90, up 31 cents

RBOB – Jan $1.2684, up 1.25 cents

HO – Jan $1.4145, up 78 points

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