Oil Settles Above $42 As Rally Continues

Oil Video 11.11.20.

According To API, Crude Inventories Declined By 5.1 Million Barrels

The recent API Crude Oil Stock Change report indicated that crude inventories fell by 5.1 million barrels after falling by 8 million barrels in the previous week. Meanwhile, gasoline inventories fell by 3.3 million barrels while distillate fuel inventories declined by 5.62 million barrels.

While this data will have to be confirmed by the EIA Weekly Petroleum Status Report which is due to be published on Thursday, it is highly unlikely that major differences would occur.

Not surprisingly, oil prices got an additional boost and managed to settle above the $42 level. High inventory levels are one of the main obstacles on the way to higher oil prices so any decline in inventories is a positive development for the oil market.

The upcoming EIA report will also provide data on U.S. domestic oil production. The previous report indicated that U.S. production fell from 11.1 million barrels per day (bpd) to 10.5 million bpd, but producers had the time to recover from the hurricane so domestic production may increase.

What Catalysts Are Needed To Take Oil Above The $43 Level?

Today, oil tested the $43 level for the first time since early September. While the current demand picture does not look good due to lockdowns in Europe, oil managed to gain upside momentum thanks to vaccine hopes and declining inventories.

In addition to above-mentioned catalysts, it looks like short positions which were initiated on the basis of European lockdowns have gone wrong, boosting momentum as traders exited their ill-timed short bets.

Meanwhile, there is nothing special in the current futures curve, and WTI December 2021 futures are trading near the $44 level at a premium of roughly $1.5 compared to the front-month contract.

In my opinion, the oil market may need an additional dose of optimism to get past the $43 level as near-term challenges are significant while questions about oil’s longer-term equilibrium price remain.

At the same time, the oil market has proved its sensitivity to vaccine news, and we’ll likely get more news on vaccines by the end of the year as developers complete their studies. Potentially, additional positive news on the vaccine front may be the catalyst that oil needs to get above the $43 level and settle above August highs at $43.75.

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