Recap: The oil market retraced some of its recent losses in light of the weekly petroleum
stocks reports showing draws in crude stocks. However, its gains were limited after the Federal
Reserve signaled that it would slow the pace of interest rates cuts next year. The crude market
posted a low of $70.05 in overnight trading and gradually traded higher after the EIA reported
a draw in crude stocks of 934,000 barrels. This followed a draw of 4.69 million barrels reported
by the API late Tuesday. The market posted a high of $71.38 by mid-day before it settled in a
sideways trading range ahead of the Federal Reserve interest rate decision. The market later
found some selling pressure ahead of the close after the Fed cut rates by the expected 25 basis
points but cut the pace of rate cuts for next year due to expectations of higher inflation. The
January WTI contract settled up 50 cents at $70.58 and the February Brent contract settled up
20 cents at $73.39. The product markets ended the session mixed, with the heating oil market
settling up 2.71 cents at $2.255 and the RB market settling down 11 points at $1.9428.
Technical Analysis: The crude market will likely trade lower in follow through selling seen in
the post settlement period after the Fed indicated it will slow the pace of interest rates cuts
next year to two cuts instead of the four cuts it had previously projected. The market is seen
finding support at its lows of $70.05, $69.18-$69.14 followed by $68.68, $68.44, $67.72,
$67.08 and $66.98. Meanwhile, resistance is seen at its high of $71.38, $71.44, $71.48 -$71.51,
$71.87 and $72.41.
Fundamental News: The EIA reported that U.S. crude and distillate inventories fell in the week
ending December 13th as exports increased. Crude inventories fell by 934,000 barrels to 421
million barrels in the week. U.S. crude exports increased by 1.8 million bpd to 4.89 million bpd.
Distillate stocks fell by 3.2 million barrels on the week to 118.2 million barrels as total U.S.
distillate demand increased to about 4.5 million bpd, the highest level since March 2022.
Distillate demand increased by more than 1 million bpd last week, the highest weekly increase
since December 2021.
The U.S. EPA said it has approved California’s landmark plan to end the sale of gasoline -only
vehicles by 2035. EPA Administrator Michael Regan granted a waiver under the Clean Air Act
to California to implement its plan to require that by 2035 at least 80% of new cars sold be
electric and up to 20% plug-in hybrid models.
Bloomberg News is reporting that the transition team for the incoming Trump administration
is recommending potential policy changes during the first 100 days in office that will seek to
cut federal subsidies to boost electric vehicles. But the group is also looking to encourage
relaxing environmental reviews and speeding up permitting for federally funded EV and
infrastructure projects, including the development of batteries and critical minerals.
IIR Energy said U.S. oil refiners are expected to shut in about 265,000 bpd of capacity in the
week ending December 20th, cutting available refining capacity by 171,000 bpd. Offline
capacity is expected to fall to 25,000 bpd in the week ending December 27th.
The U.S. Federal Reserve cut interest rates on Wednesday by 25 basis points and signaled it
will slow the pace at which borrowing costs fall any further given a relatively stable
unemployment rate and little recent improvement in inflation. U.S. central bankers now
project they will make just two quarter-percentage-point rate reductions by the end of 2025.
That is half a percentage point less in policy easing next year than officials anticipated as of
September, with Fed projections of inflation for the first year of the new Trump administration
increasing from 2.1% in their prior projections to 2.5% in the current ones, well above the
central bank’s 2% target. With Wednesday’s rate cut, the Fed has now cut rates a full
percentage point this year. Fed officials also increased their estimate of the long -run neutral
rate of interest to 3%.
Early Market Call – as of 8:25 AM EDT
WTI – Jan $70.56, down 2 cents
RBOB – Jan $1.9400, down 28 points
HO – Jan $2.2460, down 90 points
