Recap: The oil market posted an outside trading day on Wednesday, trading to its high in overnight trading ahead of the OPEC+ meeting and EIA inventory report before it gave up all of its gains in afternoon trading. The market breached its previous high and rallied to a high of $79.73 and traded back within Tuesday’s trading range following the news that OPEC+’s Joint Ministerial Monitoring Committee recommended making no changes to its output policy during its meeting. The market however later continued to trend lower after the EIA reported across the board builds in U.S. inventories of crude oil and oil products and an unexpected decline in refinery capacity utilization. U.S. crude oil stocks increased for a sixth consecutive week, increasing over 450 million barrels for the first time since June 2021, amid subdued refining capacity and increased imports. The crude market, breached its support at its previous low and 62% retracement level of $76.53 as it sold off to a low of $76.05 in afternoon trading ahead of the Fed’s interest rate decision. The market later settled in a sideways trading range, remaining in negative territory after the Federal Reserve announced a quarter percentage point interest rate increase as expected. The March WTI settled at a three-week low, down $2.46 or 3.12% at $76.41. Meanwhile, the April Brent contract settled down $2.62 or 3.1% at $82.84. The product markets ended sharply lower, with the heating oil market settling down 19.37 at $2.9511 and the RB market settling down 11.3 cents at $2.4538.
Technical Analysis: The oil market will likely trade in a sideways trading range on Thursday after falling more than $3 during Wednesday’s session. The market is seen finding support at its low of $76.05 followed by more distant support at $74.72, basis a support line, $74.56, $74.16 and $73.79. Meanwhile, resistance is seen at $78.81, basis a trendline, its highs of $79.73 and $80.49. More distant resistance is seen at $81.84, basis a trendline.
Fundamental News: An OPEC+ panel endorsed the oil producer group's current output policy at a meeting on Wednesday, leaving production cuts agreed last year in place amid hopes of higher Chinese demand and uncertain prospects for Russian supply. Ministers from OPEC+ countries on the panel, called the Joint Ministerial Monitoring Committee, reviewed production figures and "reaffirmed their commitment" to the OPEC+ accord that runs to the end of 2023. A source said the message was OPEC+ is staying the course until the end of the agreement and the group was on "mute mode". Other OPEC+ sources said the ministers did not discuss the prospects for Chinese demand and supply from Russia. OPEC+ agreed to cut its production target by 2 million bpd or about 2% of world demand, from November last year until the end of 2023 to support the market. The committee will meet again in April.
Enterprise Products Partners was bullish on oil production from the top U.S. shale basin, predicting that international demand for U.S. oil and gas will increase.
U.S. exports of light sweet crude to China increased to a five-month high, as the world's largest crude importer increased refining and as Europe's demand eased. Matt Smith, lead oil analyst for the Americas at data and analytics firm Kpler, said cargoes of U.S. light sweet crude bound for China increased last month to about 187,000 bpd, the highest since August. Those exports are expected to tighten global supply of light sweet crude, while prices for WTI Midland have strengthened. Vikas Dwivedi, global oil and gas strategist at financial services firm Macquarie Group, said a tight light sweet crude market is an indication that oil prices could go higher in the coming weeks. U.S. exports to Asia are expected to continue expanding. Macquarie has forecast U.S. production to grow by about 900,000 bpd to December 2023 from December 2022, with as much as half of that production growth going toward exports to Asia.
IIR Energy said U.S. oil refiners are expected to shut in about 1,787,000 bpd of capacity in the week ending February 3rd, decreasing available refining capacity by 63,000 bpd. Offline capacity is expected to fall to 1,570,000 bpd in the week ending February 10th.
Early Market Call – as of 8:30 AM EDT
WTI – March $76.08, down 33 cents
RBOB – March $2.4595, up 57 points
HO – March $2.9124, down 3.87 cents
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