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James Hyerczyk
Crude OIl

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching higher on Thursday, shortly before the regular session opening after yesterday’s stunning reversal to the downside and massive sell-off from multi-month highs.

Traders are saying the early support is being provided by a report late Wednesday that said two rockets fell inside the Green Zone in the Iraqi capital, a section in Baghdad that contains the U.S. Embassy, other embassies of Western nations and foreign businesses, according to Reuters. There were no casualties, Iraq’s military said in a statement.

At 10:13 GMT, February WTI crude oil is trading $59.64, up $0.03 or +0.03% and March Brent crude oil is at $65.40, down $0.04 or -0.08%.

On Wednesday, the markets dropped nearly 5% after U.S. President Donald Trump’s comments on the Iran conflict eased investor worries about further escalation of geopolitical risks in the Middle East. Early in the session, prices had surged about 4% in response to the Iranian attack.

U.S. Energy Information Administration Weekly Inventories Report

Crude oil prices were also hit hard after U.S. crude oil stockpiles rose unexpectedly last week and gasoline inventories surged by their most in a week in four years, the Energy Information Administration (EIA) said on Wednesday. The report offset Tuesday’s slightly bullish numbers released by the American Petroleum Institute (API).

The EIA reported that crude inventories rose by 1.2 million barrels in the week-ended January 3 to 431.10 million barrels, compared with analysts’ expectations in a Reuters poll for a 3.6 million-barrel drop.

U.S. gasoline stocks surprised as well, rising by 9.1 million barrels in the week to 251.6 million barrels, compared with expectations in a Reuters poll for a 2.7 million-barrel rise. That was the largest one-week gain in gasoline inventories since January 2016. Gasoline supplied over the last four weeks was 0.4% lower than the same period a year ago due to weak demand.


Daily Forecast

Traders should continue to look for heightened volatility over the next few days because it doesn’t usually go away overnight. However, it looks as if it will eventually revert to the mean, which is a typical reaction. I’m sure you’ve all seen the tight range, wide range cycle. Trading volume could also drop off because the 8% price swing over the last 24 hours has probably wiped out traders on both sides of the market. They’ll need a few days to lick their wounds.

In the absence of an escalation of the conflict between the U.S. and Iran, gains are likely to be capped because inventories may rise in the first quarter.

Additionally, speculators are likely to remain active over the near-term because of the possibility that proxy militias in Iraq will continue to try to inflict damage on U.S. and Iraqi interests. However, a large price rise is not expected to stick over the long-run unless there is an actual disruption in the oil supply.

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