Recap: Oil futures got clobbered on Thursday, falling for the fifth straight session, with both Brent and WTI losing more than 7% over the last five sessions. Most of Thursday’s pressure came from a rise in the U.S. dollar and rising tensions between the U.S. and Russia, amid weight from the ubiquitous COVID-19 pandemic. With the U.S. threatening sanctions against Russia, traders fear that one way Russia will retaliate is to flood the market with oil, targeting U.S. shale producers. All this combined proved too much for bulls, who stepped up to unload some length. April WTI fell $4.60, or 7.1% to settle at $60 a barrel, the lowest front-month settlement since March 2. This is the largest one-day percentage loss since September 8. May Brent settled at $63.28 a barrel, down $4.72, or 6.94%. This marked the largest one-day percentage loss since June of 2020. Oil prices continued to fall in post settlement trading on growing concern over the number of rising COVI-19 cases in Europe, as the U.S. dollar continued to strengthen. April RBOB fell 5% to $1.94 a gallon and April heating oil lost 6.4%, falling to $1.78 a gallon.
Technical Analysis: Well, April WTI slipped through the key psychological level of $60, shifting the momentum to the downside. The market has been so jittery, going up as fast as it did, but unable to sustain upside momentum, but not quite sure it can continue lower. For now, we would look for an attempt at the 50-day moving average, as this market has not been below this level since November, the start of the up-move. Below the 50-day moving average, there is support set at $57.40. To the upside resistance is set at $60 and above that at the 10-day moving average, which is currently set at $64.54.
While the short-term fundamentals for oil prices are bearish, other underlying fundamentals are supportive. On the suppressive side, there is the stammered rollout of the COVID vaccine in Europe, a sharp rise in the U.S. dollar and increasing U.S. stockpiles. On the other side of the spectrum is Wednesday’s meeting of the U.S. Federal Reserve, which provided a boost to equities, while U.S. growth has been revised upward, and U.S. claims for unemployment expected to decline. Although U.S. crude oil inventories have been rising, the fact that it is tied to the severe cold weather in Texas, which forced refinery shutdowns, is a temporary issue. And then of course, there is always OPEC and its allies making bids to prop up prices by controlling output.
Bearing all this in mind, and going forward, we expect to see some choppy trading. Keep an eye on the front to back end of the curve.
Fundamental News: The Joint Organizations Data Initiative reported that Saudi Arabia's crude oil exports in January increased to 6.582 million bpd from 6.495 million bpd in December. It was the seven consecutive month that shipments increased since a historic low of 4.98 million bpd in June when OPEC+ production cuts were in effect. It reported that Saudi Arabia’s crude oil output in January increased by 123,000 bpd on the month to 9.103 million bpd.
Vitol’s head of origination, Chris Bake, said the increase in oil shipments from Iran, despite the U.S. sanctions, is destabilizing energy markets. He said if those barrels continue to trade through unconventional channels, it is very destabilizing for the market because nobody understands what is coming.
French President Emmanuel Macron accused Iran of continuing to violate a 2015 nuclear deal with world powers and said Iran should act responsibly. He said France would continue to work to revive a credible process to end this crisis.
The EPA said the U.S. generated fewer renewable fuel blending credits in February than in January. About 902 million ethanol (D6) blending credits were generated in February, down from 1.1 billion in January. About 306 million biodiesel (D4) blending credits were generated in February, up from 300 million in the previous month.
Early Market Call – as of 8:15 AM EDT
WTI – Apr $60.03, up 3 cents
RBOB – Apr $1.9364, down 77 points
HO – Apr $1.7877, up 35 points
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