(we were blown out of a $4.33 short)
From the CME:
WTI is the only commodity adding value overnight after yesterday's much larger than expected draw in crude oil stocks. Brent and refined products are all in negative territory. The spot WTI contract is higher for the third trading session in a row. The Feb Brent/WTI spread has also continued to narrow as Brent has been lagging WTI for the last week or so. As the spot WTI contract approaches the $95/bbl resistance level the February Brent/WTI spread is approaching the $12/bbl support area.
The oil market has been mostly fundamentally driven with the externals (equities and the US dollar) have only a minimal impact on the short term direction of prices. The main fundamental battle on the US side of the equation is a view that there will be a surplus of oil in the US. So far that view has not been supported by the data. Since the middle of October total crude oil and refined product stocks in the US have declined by 84.4 million barrels (latest EIA data) with crude oil representing 29.5 million barrels of the total draw. At this point in time the data does not suggest that there will be a surplus of oil forming in the US anytime soon. Total stocks in the US are at the lowest level since the middle of last year.
On the international side of the equation there is still a considerable amount of oil shut-in due to geopolitical events that have been evolving for the last year or so. Recently we have seen an improvement in the flow of oil from Libya but the total level of exports is still well below the full level that existed prior to the strikes and other issues at the load ports.
On the Iranian front progress is being made in the negotiations for a long term deal. If movement toward a long term deal continues we could then expect shut-in Iranian oil to begin to flow back into the market. The earliest I would see this occurring is in the second half of the year. So yes the international side has improved or at least the potential for additional oil flow has improved but the main part of the equation on the International side will be OPEC.
I would expect OPEC to aggressively defend the price of oil if the Brent market drops below the $100/bbl level. They will cut production as even the more conservative countries like Saudi Arabia are looking at a much higher price level required for managing their economy. In today's release of OPEC monthly Oil report they lowered their output further and are exporting less than this year's global oil call on OPEC due to the shut-ins coming from the MENA region. Also suggesting to me that there is not a surplus of oil building on the international front either....MORE
