Crude oil is higher this morning as supply disruptions continue. As we wrote last week, the driver of short-term strength in crude oil has been the shutdown of the Forties pipeline in the North Sea. Crude has also been helped by a weak Baker-Hughes rig count report. According to the latest report, energy companies cut the number of rigs to 747. Despite the lower rig count, EIA estimates of US crude oil production are near record highs. Accelerating US growth threatens to upset the balance in crude oil markets. Since 2016, crude oil has enjoyed a bull market as demand has accelerated faster than supply. This dynamic is likely to be threatened next year as global GDP growth slows and US supply rises. Our medium-term outlook on crude remains bullish.
WTI is currently trading just above $57.60. Brent crude is currently above $63.60.
Looking at US crude oil stocks, the most recent EIA figures (December 13) showed falling crude oil stocks and rising gasoline inventories. Crude oil inventories were lower than estimates (-5.1m vs. -4m expected). Gasoline stocks were up (+5.6m vs. +2.3m expected) while distillate stocks (-1.4m vs. +1.2m expected) were lower. Looking at reactions in markets, crude oil prices fell following the EIA report.
As crude oil falls after hitting recent highs, we are downgrading the commodity to neutral. Note that both Brent and WTI are now trading within a normal range. This is based on technical indicators on the daily chart.
As crude oil rebounds on OPEC expectations, we are upgrading the commodity to bullish in the medium-term. Looking at various technical indicators on the weekly chart, note that both Brent and WTI are trading within a normal range.