Recap: The crude market continued to rally higher on Wednesday amid geopolitical tensions, a weak dollar and oil output disruptions that continued to lend further support. The market remained well supported by U.S. crude output still shut in following the winter storm that swept across the country over the weekend. The oil output disruption in Kazakhstan is also underpinning the recent price rally. While Kazkahstan hopes that its output at the Tengiz oil field will resume gradually within a week, some sources estimate that it may take longer. In overnight trading, the market posted a low of $62.07 before it bounced off that level and continued on its upward trend. The market was well supported by U.S. President Donald Trump’s threat against Iran, urging the country to make a deal on nuclear weapons or suffer a far worse U.S. attack. The crude market traded to a high of $63.52 by mid-morning ahead of the release of the EIA’s weekly petroleum stocks report. It later settled in a sideways trading during the remainder of the session. The March WTI contract ended the session up 82 cents at $63.21 and the March Brent contract settled up 83 cents at $68.40. The product markets ended the session higher, with the heating oil market settling up 1.99 cents at $2.6661 as it remained well supported by the weather forecasts, and the RB market settling up 2.71 cents at $1.8923.
Technical Analysis: While the oil market may retrace some of its sharp gains, its losses will remain limited amid the increasing geopolitical tensions following the renewed U.S. threats against Iran. The market will remain in a wait and see mode amid the uncertainty over the Trump administration’s next move in regards to Iran. The market will also remain supported by the continuing disruption in output in Kazakhstan. The crude market is seen finding resistance at $63.52, followed by $63.96 and $64.75. Meanwhile, support is seen at $62.07, $61.61, $61.03, $60.44, $60.20, $60.14, $59.52, $59.18, $58.96 and $58.53.
Fundamental News: Bloomberg reported that U.S. electric grid operators are considering ordering data centers to run diesel-powered backup generators, a move that threatens to push prices for distillate fuel up further. On Monday, the U.S. Department of Energy authorized PJM Interconnection and two units of Duke Energy Corp. to direct data centers and other large facilities to run backup generators as a last resort to prevent rolling blackouts. The move effectively allows power destined for industrial-scale customers to be diverted to households and the rest of the grid as heating demand tests the upper limits of electricity supplies. PJM is expecting an unprecedented level of seasonal demand through the end of the month, but so far power supply and demand imbalances have not reached the critical level at which backup generators might come online. Robert Yawger, director of the energy futures division at Mizuho Securities USA, projects that diesel futures will reach 275 cents a gallon by week’s end in the event that backup generators come online.
According to consultancy Energy Aspects, U.S. crude oil producers were bringing wells back online on Wednesday following a severe winter storm that swept across the country over the weekend. Domestic crude output is now estimated to be down around 600,000 bpd or about 4% of total output, compared with a peak loss of 2 million bpd on Saturday. Energy Aspects reported that the Permian Basin in Texas and New Mexico was down around 250,000 bpd or about 4% of the shale play’s output. There were also ongoing outages across the Bakken oilfield in North Dakota, and the Anadarko in Oklahoma.
Chevron is set to increase exports of Venezuelan crude to the U.S. to about 300,000 bpd in March from 100,000 bpd in December and some 230,000 bpd so far this month.
IIR Energy said U.S. oil refiners are expected to shut in about 1.25 million bpd of capacity in the week ending January 30th, cutting available refining capacity by 136,000 bpd.
Early Market Call – as of 8:40 AM EDT
WTI – Mar $65.31, up $1.81
RBOB – Feb $1.9226, up 2.7 cents
HO – Feb $2.6273, up 10 points
