The February WTI (CLG25) trading session settled at 70.29 (-0.53) [-0.75%], a high of 71, a low of 69.98. Cash price is at 71.29 (+1.29), while open interest for CLG25 is at 313,766. CLG25 settled above its 5 day (69.76), above its 20 day (68.88), above its 50 day (69.48), above its 100 day (69.91), below its 200 day (72.85) and below its year-to-date (72.60) moving averages. The COT report (Futures and Options Summary) as of 12/10 showed commercials with a net short position of -227,239 (a decrease in short positions by +10,313 from the previous week) and non-commercials who are net long +214,911 (a decrease in long positions by -12,938 from the previous week).
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China’s National Bureau of Statistics released data showing China’s retail sales growth in November dipping deeper than expected at 3% year-over-year against a forecast of 5% and below October’s 4.8%. However, China’s November industrial production came in higher than its forecast, hitting 5.4% year-over-year against a forecast of 5.3%. Reuters reported that China’s November crude oil imports hit a fourteen-month high, showing a surplus of roughly 1.77 million barrels per day, with an average import of 11.81 million barrels per day. The National Bureau of Statistics said China’s oil refineries processed about 14.24 million barrels per day, up 0.2% year-over-year. China’s crude oil imports grew in November for the first time in seven months, registering a +14% year-over-year increase Reuters reported, citing customs data. Last week China’s Politburo signaled it is planning to expand fiscal spending and have its first monetary easing since 2010, according to the official state Xinhua News Agency. The group said China will hit their target growth for 2024 of “around 5%”, with 2025 expected to be slightly higher than this year. China signaled they were considering allowing the yuan to weaken next year to offset the impact of the potential trade war with the Trump Administration. Leaders at China’s Central Economic Work Conference also mentioned they could increase their budget deficit and increase debt issuance at the local and central government levels, while also hinting at cutting interest rates. The National People’s Congress standing committee meeting is set to be held in late December. The Shanghai based CSI 300 Index closed lower by -0.13%.
Treasury Secretary Janet Yellen told Reuters on Friday that the U.S. is considering putting additional sanctions on “dark fleet” Russian crude oil tankers in an attempt to lower Russia’s $60 per barrel price cap. In addition Secretary Yellen said America could target Chinese banks to limit oil revenue that helps Russia fund their war in Ukraine. Bloomberg reported that Canada is considering implementing export taxes on energy products it ships to the U.S. if Trump pursues a trade war with the country. The Fed meets tomorrow and Wednesday where they are expected to cut rates again by 25 basis points. The CME’s Fedwatch tool pegs it at 99.1% chance, all but certain. The Dollar Index (DYX) closed lower by 0.14%.
Last week’s EIA data showed U.S. crude inventories falling by -1.4 million barrels vs a forecast of -744,000 barrels, registering a total of 422 million barrels, which is about 6% lower than the five-year seasonal average. U.S. refiners operated at 92.4% capacity. The Cushing Oklahoma Hub had a draw of -1.3 million barrels. U.S. crude oil imports averaged 6 million barrels per day last week, a decrease of 1.3 million barrels per day from the previous week. API’s survey said crude oil stocks had increased by 499,000 barrels.
OPEC+ cut their oil demand growth forecast last week for this year and for next year for the fifth straight month. Via its latest monthly report, OPEC+ lowered their consumption growth 2024 figure by 210,000 barrels per day, foreseeing a total of 1.6 million barrels per day. Since July of this year OPEC+ has lowered their projections by 27%. OPEC+ agreed to delay their production unwinding until April 2025, which would last through September 2026, restoring 180,000 barrels per day until the currently withheld 2.2 million barrels per day are back online. The International Energy Agency said in their monthly report that they predict world markets will have a glut of 1.4 million barrels a day, adding that even if OPEC+ decided to delay their output cuts for all of 2025 there would still be a glut of 950,000 barrels a day.
Price Thoughts – After crude hit a 3 and a half week high and 6% rally last week, crude gave back some of its gains after weaker than expected Chinese economic data was released this morning. Passing and settling through key moving averages last week (the 7, 20, 50 and 100), $72.50 still seems to be the resistance for Feb contracts. Crude has been content trading in the middle of its current range of $66-$72.25, which it has been trading in for roughly eight weeks now. I am in wait and see mode, the opportunity to buy below $67 (which I had been recommending for over two months) in the short term has faded, and I sense with the settlements over key moving averages that the short-term price action is trending upward rather than downward. Maybe we hold below mid $72, with the market “seemingly” being overbought, so we could absolutely sell back to the mid $60’s, but I wouldn’t look to get short at this time. If you are looking to trade just to trade I guess you could stick with trading this two-month range and get short if we are stuck around the mid $72 resistance, but personally I would urge patience until we pass the thinner volume holiday weeks.
Now that Donald Trump has been elected President, I believe he’ll fulfill his promise to “Drill baby, drill”, significantly increasing the output capacity for American energy by year’s end. Keep in mind that the U.S. currently produces 13.5 million barrels of oil per day, a figure that’s nearly 30% higher than it was just four years ago. Over the past 50 years, U.S. energy production has grown at a faster rate than consumption, and since 2019, America has been a net energy exporter. We shall see where that “million barrels per day” number goes after Trump is sworn in. Drastically increasing American energy output could create an interesting market share conflict with the OPEC+ nations, but that’s another story, potentially down the line. Then there’s China, how much stimulus they choose to add to bolster their economy could determine crude prices significantly in the short and long term, I believe, and we’ll have to wait and see the impact Trump’s tariffs have. And then there’s the Middle East situation, which could simmer or explode, and even if the violence ends I believe we’ll see new economic sanctions on Iran targeting their energy revenue. With the prevailing themes of a stronger dollar, potential trade wars, increasing global production, slowing economies and a lack of global demand front running price sentiment, it leads me to believe in 2025 crude oil prices will not end up averaging in the $85-$95 range, rather I see crude prices trading in the low $60’s to middle $70’s range, for long as there’s no black swan events.
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Jim Rinaudo
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