API reports build while market awaits EIA report

Oil benchmarks are gradually moving higher as supplies are set to decline relatively rapid from OPEC beginning this year. However, the growth concern in Europe and China are exerting downward pressure. WTI is currently trading at $53.6 per barrel and Brent at $8.6 per barrel premium to WTI.

Key factors at play in the crude oil market –

• OPEC and non-OPEC members decided to cut oil output by 1.2 million barrels per day, where OPEC would bear 0.8 million supply cut, and the rest would be borne by the Russia-led non-OPEC.  
• IEA reports that the oil supplies are increasing at rapid pace and production has now crossed well above 100 million barrels per day. However, in recent reports, IEA indicated a slowdown in non-OPEC supplies in 2019.
• As Saudi Arabia’s goodwill evaporates due to the murder of journalist Jamal Khashoggi at the Saudi consulate in Istanbul, the U.S. judiciary committee passed a bill that if passed would allow the U.S. justice department to sue OPEC members over manipulation.
• Beginning November, the U.S. has re-imposed all the sanctions on Iran and has threatened to counter sanctions on any countries or bodies which violate the sanctions. However, the U.S. has granted a 180-day waiver of sanctions to several big Iranian crude oil importers like China, Korea, and India. The recent report suggests that the USA is resisting calls for an extension of the waiver or an increase in the limits.
• EU, alongside Iran, Russia, and China have created a special purpose vehicle (SPV) to bypass the U.S. sanctions for companies operating in Iran. However, recent reports and comments suggest that the relationship with EU is souring.
• Venezuela in crisis as oil production declined to 1.137 million barrels per day in November. However, in December production rose marginally to 1.148 million barrels per day. The crisis in Venezuela could gather pace as the U.S. recognizes the opposition leader as the legitimate President, and Maduro vowed to remain in power. Several EU countries have also followed suit.   
• EIA projects U.S. crude production to increase to 12 million barrels per day by end of 2019 and the U.S. would become the single largest producer by the next five years.
• Current U.S production at 11.9 million barrels per day.
• Oil future curves have now flipped to backwardation.
• API reported a small draw of 1 million barrels of crude oil. Gasoline saw a small build of 0.75 million barrels.

Today’s inventory report from the US Energy Information Administration (EIA) will be released at 15:30 GMT.