Oil futures jumped on expectations the EIA report will show an increase in U.S. crude oil inventories

Market Insights
Heating Oil
November 10, 2021
Recap: Oil futures jumped ahead of the EIA weekly inventory report, which is expected to show an increase of 1.9 million barrels in U.S. crude oil inventories. Spurred higher by OPEC+’s decision to hold steady on its output levels, while demand is expected to increase. Adding to the strength in the market is speculation that the Biden administration may pull the plug on any plans to release crude oil from the U.S. strategic reserves. Oil prices have skyrocketed this year with a global economic recovery boosting consumption while crude production returns at a more modest pace. The Energy Information Administration’s view that global production growth will outpace oil consumption and ease market pressure isn’t shared universally. Oil futures continued to climb after the settlement period, with December WTI reaching a session high of $84.53 a barrel, a gain of 2.8% before settling at $84.15, up $2.22, or 2.71%. Brent for January delivery reached a session high of $84.86 a barrel before settling at $85, up $1.35, or 1.6%. Both Brent and WTI settled at their highest level in two-weeks. December gasoline tacked on 2.3% to $2.375 a gallon and December heating oil added 1.7% to $2.508 a gallon.

Market Outlook: December WTI reversed early losses, to push past $81.83, the pivotal area we wrote about on Monday, and continued to work its way back into the ascending channel. The up move is gaining momentum on tight supplies amid hopes of increasing demand. The strong pre-settlement rally pushed the near-term range to the upside, with $85 being the initial upside objective. Above this level, additional resistance rests at $88. A trade below $81.83 will shift the near-term sentiment, with support below this level resting at $80 and below that at $78 and $75.

Fundamental NewsAccording to a White House official, the Biden administration will not announce an SPR release on Tuesday. 

In its Short Term Energy Outlook, the EIA increased its oil demand growth estimate for 2021 by 60,000 bpd to 5.11 million bpd.  However, it cut its 2022 world oil demand growth forecast by 130,000 bpd to 3.35 million bpd.  World petroleum demand is forecast to total 97.53 million bpd in 2021 and 100.88 million bpd in 2022.  Total world petroleum supply is expected to increase by 1.78 million bpd to 95.97 million bpd in 2021 and by 5.45 million bpd to 101.42 million bpd in 2022.  OPEC output is estimated to increase by 740,000 bpd to 26.34 million bpd in 2021 and by 2.03 million bpd to 28.37 million bpd in 2022.  The EIA reported that U.S. crude oil output is expected to fall by 150,000 bpd to 11.13 million bpd in 2021 compared with a fall of 260,000 bpd forecast in October.  U.S crude output is expected to increase by 770,000 bpd to 11.9 million bpd in 2022, compared with a previous estimate of an increase of 710,000 bpd.  U.S. liquid fuels consumption is expected to increase by 1.49 million bpd in 2021, compared with a previous forecasted increase of 1.48 million bpd. Demand in 2022 is expected to increase by 690,000 bpd to 20.37 million bpd, compared with an increase of 760,000 bpd forecast last month. 

Al-Arabiya TV cited Saudi Aramco's Chief Executive Officer, Amin Nasser, as saying that oil demand is expected to exceed 100 million barrels per day in 2022.  He said global oil spare production capacity could diminish next year as air passengers return to the skies, removing an important cushion of about 3-4 million bpd that the market is currently enjoying.

Goldman Sachs reiterated its prediction of a commodities supercycle driven by a recovery from the COVID-19 pandemic and stimulus measures which will increase demand. 

Vitol’s CEO, Russell Hardy, said the oil market is still in a tight situation and will remain reasonably tight for the next 12 months.  He said the U.S. SPR release would relieve some year-end stress but added that oil supply will be tight for 2022. 

Early Market Call - as of 9:25 AM EDT
WTI - Dec  $84.07, down 8 cents
RBOB - Dec $2.3600, down 1.57 cents
HO - Dec $2.5062, down 21 points

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