Recap: The oil market continued to trend lower as prospects for a Russia-Ukraine peace deal appeared to strengthen. On Monday, the U.S. offered to provide NATO-style security guarantees for Ukraine, while European negotiators reported progress in talks, sparking optimism that an end to the war between Russia and Ukraine was closer. Meanwhile, Russia said it was not willing to make any territorial concessions. The crude market posted a high of $56.70 on the opening and continued to extend its previous losses as the market assessed a potential peace deal resulting in additional Russian volumes. The market sold off to a low of $54.98 by mid-morning and settled in a sideways trading range during the remainder of the session. The January WTI contract settled down $1.55 at $55.27 and the February Brent contract settled down $1.64 at $58.92. The product markets ended the session lower, with the heating oil market settling down 5.2 cents at $2.1286 and the RB market settling down 5.14 cents at $1.6809.
Technical Analysis: The crude market on Wednesday will trade sideways at the market awaits for further developments on the possible Russia-Ukraine peace deal, with further talks likely this weekend in the U.S. following talks with Ukraine’s President Volodymyr Zelenskiy in Berlin. The market will also keep an eye on the developments in the tensions between the U.S. and Venezuela. The oil market is seen finding support at $54.98 and $54.71. Meanwhile, resistance is seen at $56.70, $57.09, $57.74, $57.80, $58.19, $58.39, $58.94, $59.05 and $59.17.
Fundamental News: Traders and sources said Venezuela’s state-run company PDVSA is dealing with stuck oil cargoes, rising price discounts and demands from customers to change terms of spot contracts following the U.S. seizure of a ship carrying the OPEC country’s crude. This year, China has been the destination of between 55% and 90% of Venezuela’s monthly oil exports, compared with 40%-60% last year. In November, the country exported 952,000 bpd of oil, of which 778,000 bpd went to China. Analysts have warned that Venezuelan supplies in China could be reduced in February if tankers currently loaded and waiting in Venezuelan waters are unable to depart. As of this week, more than 11 million barrels of Venezuelan oil were stuck on vessels waiting to leave as traders tried to negotiate further discounts.
Reuters reported that China’s flows of crude oil into storage probably increased in November to the highest level in six months, as an increase in imports surpassed steady refinery processing rates. According to calculations based on official data, China’s surplus of crude was about 1.88 million bpd in November, almost three times the 690,000 bpd in October and the most since April’s 1.89 million bpd. China’s refineries processed 14.86 million bpd in November, largely steady with October’s 14.94 million bpd and up 3.9% from November last. Crude imports were 12.43 million bpd in November, a 27-month high and up 8.7% from October’s 11.39 million bpd, while domestic oil production was 4.31 million bpd in November, up slightly from 4.24 million bpd in October. This means that a total of 16.74 million bpd was available to refiners in November from imports and domestic output. Subtracting the volume of crude processed from the total available leaves a surplus of 1.88 million bpd. For the first 11 months of the year, the surplus crude amounts to 980,000 bpd, given combined imports and domestic production of 15.80 million bpd and refinery throughput of 14.82 million bpd. December’s crude surplus is likely to be even bigger than that of November, with commodity analysts Kpler estimating China’s seaborne imports will increase to 12.59 million bpd, a figure that does not include pipeline imports from Russia of almost 1 million bpd.
Early Market Call – as of 8:40 AM EDT
WTI – Jan $56.32, up $1.15
RBOB – Jan $1.6987, up 1.67 cents
HO – Jan $2.1568, up 3.16 cents
