Oil Pulls Back As Traders Take Some Profits Off The Table

Oil Video 16.12.20.

Crude Inventories Declined By 3.1 Million Barrels

EIA has just released its Weekly Petroleum Status Report which indicated that crude inventories declined by 3.1 million barrels. Yesterday, API Crude Oil Stock Change report estimated that inventories increased by 2 million barrels but the market will certainly focus on EIA data which is believed to be more accurate.

Crude oil imports declined by 1.1 million barrels per day (bpd) from the previous week and averaged 5.4 million bpd. Imports returned to more normal levels which is good for the market.

Gasoline inventories increased by 1 million barrels which is not surprising given the seasonality of gasoline demand. Meanwhile, distillate fuel inventories grew by 0.2 million barrels.

Surprisingly, U.S. domestic oil production declined from 11.1 million bpd to 11 million bpd. This is a very interesting development as the number of U.S. oil rigs continues to increase.

If the U.S. domestic oil production fails to increase from the 11 million bpd level, the oil market will get additional support. At this point, it’s too early to tell whether the recent oil price upside failed to boost U.S. production but the next few weeks will show if U.S. producers reacted to the recent developments on the oil price front.

Weak U.S. Dollar May Push Oil to Higher Levels

In recent weeks, oil traders were focused on vaccine news. However, oil may soon get another positive catalyst – the U.S. dollar is currently testing yearly lows against a broad basket of currencies.

Weak dollar is typically bullish for dollar-denominated commodities. The U.S. Dollar Index is currently trying to get to the test of the psychologically important 90 level, and a move below this level may lead to a sell-off which could provide additional support to oil.

The U.S. Fed will announce its Interest Rate Decision and provide commentary today. If the Fed expands its asset purchase program, we may see a rally across the whole commodity space.

However, oil’s gains may be limited by traders’ desire to take some profits at the end of the year as OPEC+ will increase oil production in January while the situation on the virus front remains challenging.

For a look at all of today’s economic events, check out our economic calendar.