Oil has dropped over 25% from a peak in January

Recap: Oil prices continued their downward spiral on Monday as the spread of the coronavirus took yet another bite out of demand amid indications OPEC and its allies are unlikely to take immediate steps to further curtail output. Oil has dropped over 25% from a peak in January after the spreading virus hit demand in China, the world’s largest oil importer, and fueled concerns of excess global supplies. The premium of the Brent front-month over the same WTI contract fell to its lowest since August 2019 in intraday trade, with the April spread falling to a low of -$4.02. WTI for March delivery slipped 31 cents, or 0.6%, to $50.02 a barrel, while April Brent fell 49 cents, or 0.9%, to $53.98 a barrel. March RBOB fell 1.1% to $1.5066 a gallon, while March heating oil was off 1.4% at $1.6197 a gallon. 

Technical Analysis: WTI traded in oversold territory for 14 straight days, the longest bearish streak since November 2018. Although moving oscillators are set deep in oversold territory, the do not appear ready to cross to the upside. With this in mind, and the fact that this market has broken $50.00, we would look for prices to continue to work lower. Our initial downside objective is $48.05, with additional support set at $46.30. To the upside, resistance is set at $51.85 and above that at $53.30.

Fundamental News: Bloomberg reported that US President Donald Trump has proposed selling 15 million barrels from the US oil reserve.

Algeria’s Oil Minister, Mohamed Arkab, said the Joint Technical Committee had advised further output cuts until the end of the second quarter.  Meanwhile, Russia’s Energy Minister, Alexander Novak, has stated that Russia needs more time to assess the situation. 

According to the Alaska Department of Revenue, Alaska North Slope crude oil production in January fell about 10,000 bpd on the year to 514,887 bpd.  Average oil production from the Alaska North Slope was 525,075 bpd in January 2019. Output fell by 12,661 bpd on the year to 510,271 bpd in December and fell by 14,943 bpd to 511,549 bpd in November. 

Libya’s central bank said the country’s oil revenues fell to zero in January after forces and tribesmen allied to eastern commander Khalifa Haftar blocked major oil ports.  Tribesmen and forces loyal to him closed all eastern ports and major fields last month in a power play.  The oil shutdown has caused losses exceeding 2.5 billion Libyan dinars or $1.78 billion.  

IIR Energy reported that US oil refiners are expected to shut in 513,000 bpd of capacity in the week ending February 14th, increasing available refining capacity by 148,000 bpd from the previous week.  Offline capacity is expected to increase to 533,000 bpd in the week ending February 21st.

President Donald Trump’s $4.8 trillion budget plan for the coming fiscal year drew a prompt rejection on Monday from congressional Democrats, who said it betrayed his promise to protect health and safety-net programs.  The budget would fund the Republican president’s top priorities, including construction of a wall on the US border with Mexico, while cutting hundreds of billions of dollars from safety net programs under the banner of welfare reform.  The budget would cut Medicare spending by lowering drug costs and nearly half Social Security’s disability program by tightening eligibility requirements.  It would also cut $292 billion from food stamps and the Medicaid health plan for the poor by enacting new work requirements for beneficiaries.  The budget includes $2 billion to fund further construction on the border wall with Mexico.  Military spending would increase 0.3% to $740.5 billion.  The budget forecasts a $4.6 trillion in deficit reduction over 10 years and assumes economic growth at an annual rate of about 3% for years to come. 

Early Market Call – as of 8:35 AM EDT

WTI – Mar $50.45, up 87 cents

RBOB – Mar $1.5324, up 1.10 cents

HO – Mar $1.6314, up 1.89 cents

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This market update is provided for information purposes only and is not intended as advice on any transaction nor is it a solicitation to buy or sell commodities. Sprague makes no representations or warranties with respect to the contents of such news, including, without limitation, its accuracy and completeness, and Sprague shall not be responsible for the consequence of reliance upon any opinions, statements, projections and analyses presented herein or for any omission or error in fact. The views expressed in this material are through the period as of the date of this report and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance or results and actual results or developments may differ materially from those projected. The whole or any part of this work may not be reproduced, copied, or transmitted or any of its contents disclosed to third parties without Sprague’s express written consent.