Tensions Ease in the Middle East
January 14, 2020
Crude oil and refined fuel product prices traded lower yesterday, and it was mainly driven by easing tension in the Middle East and lower seasonal gasoline demand following last week’s big jump in gasoline stocks of 9.1 million barrels. That big build to inventory was the largest weekly build reported by the EIA in total gasoline stocks since January 2016.
In last week’s report the EIA said the implied demand (product supplied) for gasoline was down by 6.9% this year vs. last year and that distillate implied demand is now down by 4.4% this vs. last year. This continue to put some pressure on the market and early indication for tomorrows EIA inventory report is that gasoline stocks could see another big build near 4 million barrels. Crude estimates are for an 800,000-barrel decline and distillates are called up 700,000 barrels.
Saudi Arabia’s Energy Minister, Price Abdulaziz bin Salman Al-Saud, said the country has taken all precautions to ensure the safety of oil facilities after recent strikes in Iraq. He said Saudi Arabia’s oil production is at 9.744 million barrels in January and February. He said Saudi Arabia will work for oil market stability at a time of heightened US-Iranian tension and want to see sustainable prices and demand growth. He said it was too early to talk about whether OPEC and its allies would continue with production cuts agreed under a deal that expires in March. He also stated that Iraq’s compliance with OPEC cuts improved in December and is looking for full compliance in January.
China’s CNPC reported that the country’s apparent crude oil demand increased by 3.6% on the year to 719 million tons. China’s crude oil imports are forecast to increase by 1.57% on the year to 194 million tons in 2020. Its crude oil imports are expected to increase by 4.4% on the year to 525 million tons in 2020. It is forecast to add 27 million tons of new crude oil refining capacity in 2020.
Traders are waiting to see if more details emerge as the US and China get ready to sign the “Phase 1” trade deal. If is possible that if the details are not what traders are looking for that equities and commodities could sell off. As tensions in the Middle East easy traders look to this deal for some input to market directions. Reuters is reporting that details of the trade deal have China buying an additional $80 billion of manufactured goods from the US over the next two years, plus an additional $50 billion in energy supplies. Agricultural purchased would increase by $16 billion per year over the next two years and that would push the total of ag purchased close to $40 billion.
The energy market has been trading lower by stair stepping down through technical support points. The market has had a very strong correction over the last week and WTI crude oil and NYMEX RBOB are approaching their 200-day moving average a key technical support level. If these levels can hold up and create a rebound, then the market should at a minimum congest in its current area. If these levels cannot support the market, then another round of selling to test the next support levels is likely. Tension have eased in the Middle East and that is helping the downside, but I am not sure we are out of the woods yet as that area is always a wild card on what could get stirred up.
Just FYI. I have removed the Ferrellgas Partners stock listing. As previously announced by the company on December 20th, 2019, the company elected to voluntarily delist from the NYSE for an indefinite period of time.