31 January 2018 at 15:16 GMT
- Focus on rising US output and potential first stock increase since November
- EIA to release its 'Weekly Petroleum Status Report' at 15:30 GMT
- API yesterday reported its second consecutive rise in crude oil stocks
US output has surged in recent weeks, reflecting price gains. Pic: Shutterstock
By Ole Hansen
Crude oil is trading lower for a third day after being hit by profit taking amid weaker stock markets and a focus on rising US production and the potential first stock increase since November. A 50% rally since last July has also raised questions about the sustainability of current demand growth expectations.
The EIA will release its 'Weekly Petroleum Status Report' at 15:30 GMT. Following a second consecutive rise in crude oil stocks being reported by the privately funded American Petroleum Institute, surveys point towards the first official rise since November.
The seasonal slowdown in refinery demand has so far been offset by a rise in crude oil exports and reduced imports from Canada. Today's number, however, could signal the beginning of the stock building season which normally tends to last until April. This process may be speeded up by the the recent contraction in WTI's discount to Brent which may reduce export. Gasoline stocks are expected to continue their seasonal climb while distillate stocks will be negatively impacted by the surge in demand for heating.
US crude oil production, according to weekly estimates, is now just 122,000 b/d below the headline-grabbing 10 million b/d mark. Following strong increases in recent weeks, that target is now within reach.
In my weekly update on speculative positioning
I mentioned how hedge funds had accumulated a record net-long position in WTI and Brent crude of 1.1 million lots (1.1 billion barrels). Funds have benefited from the combination of a sustained rally and only small corrections along the way.
The call for a crude oil correction has so far been left unheard despite the increased risk of such a one-sided position. The fact, however, remains that funds will continue to buy into strength until the music stops.
The correction seen these past couple of days after WTI and Brent both found resistance after recovering half of what was lost during the 2014 to 2016 selloff has so far not been deep enough to rattle the bulls. For that to happen I believe WTI needs to break below $62.60/b and Brent below $67.30/b. Overall we maintain the view of short-term risk being skewed to the downside, primarily based on the expectation that the newsflow could turn less price friendly over the coming weeks due to the reasons mentioned above.
Source: Saxo Bank
At a breakfast briefing to journalists in London on Tuesday I was interviewed Bloomberg to its daily brief on oil. Please click
here to access.
I will post updates and charts below once the EIA report is released.
– Edited by Clare MacCarthy
Ole Hansen is head of commodity strategy at Saxo Bank