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James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading better on Friday shortly before the regular session opening. The markets are attempting to recover from yesterday’s weakness. The early catalyst is increased demand for risky assets. Stocks are following through to the upside after yesterday’s dramatic reversal bottom. This is helping to encourage a few of the weaker crude oil short-sellers to pare positions. Later today, investors will get the opportunity to react to the latest inventories report from the U.S. Energy Information Administration at 1600 GMT.

At 1148 GMT, February WTI crude oil futures are trading $45.59, up $0.98 or +2.20%. March Brent crude oil is at $53.58, up $0.85 or +1.61%.

Russian Energy Minister Novak Speaks

Russian Energy Minister Alexander Novak said on Thursday that rising protectionism and the unpredictability of the U.S. administration had greatly contributed to global oil price volatility over the past two years.

Novak also said Russia would cut its crude output by between 3 million and 5 million tonnes in the first half of 2019 as part of a deal between producers.

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API Reports Increased Supply

Crude oil futures tumbled late in the session on Thursday after the American Petroleum Institute (API) reported an unexpected crude oil inventory build of 6.9 million barrels for the week-ending December 21. The number exceeded analyst estimates of 2.869 million barrels. This figure only added to the supply uncertainty in this market after the API reported a more than 3 million barrel build last week, followed by a U.S. Energy Information Administration weekly inventories report that showed a draw of 500,000.

Inventories at the futures hub in Cushing, Oklahoma also climbed this week by 1.8 million barrels.

The API also reported a build in gasoline inventories for the week-ending December 21 of 3.7 million barrels. This was well above the estimate of 28,000 barrels. Distillate inventories, however, fell last week by 598,000 barrels. Traders were looking for a draw of 529,000 barrels.

Forecast

The price action this week in crude oil has been primarily driven by the volatility in the stock market. This trend is likely to continue today based on the early reaction to the firm stock market. It think the plan should be simple today. If stocks rally then look for crude oil to be support. If stocks weaken then this should take crude oil down.

Finally, traders are looking for the EIA report to show a 2.9 million barrel draw down. Prices should rally if the draw is bigger than expected. However, an unexpected build should put a lid on any rally.

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