Oil, fundamental analysis
Crude prices were up-and-down this week as traders eyed both optimistic and pessimistic signs regarding the proposed US/Iran talks held Friday. A large drop in crude and distillate inventories were the main fundamental factors noticed. Despite the rollercoaster ride, US prices remained above the key $60/bbl level. WTI had a High of $65.55/bbl on Wednesday with a weekly Low of $61.10 on Tuesday. Brent crude’s High was $69.75/bbl on Wednesday while its Low was $65.75 Monday. Both grades settled lower week-on-week. The WTI/Brent spread has tightened to ($4.50).
The week started with a bearish tone as US President Trump spoke with optimism about the upcoming US/Iran talks. However, later in the week, the Iranian government objected to the specific topics the US wants to discuss beyond their nuclear developments and the meeting appeared doomed. The two sides did decide to follow through with the planned meeting Friday with Iranian officials labeling the meeting as a ‘very good start.’
Meanwhile, the Iranian Revolutionary Guard Corps (IRGCC) attempted to stop a US-flagged vessel in the Strait of Hormuz and sent drones to a US Navy ship in the area. Both attempts were thwarted by US naval forces. Some Very Large Crude Carriers (VLCC) are said to have been increasing their normal speeds for faster passage through the Strait of Hormuz while it’s still open. It is estimate that slightly more than 25% of global oil supplies move through the Strait.
Russia is now relying heavily on its relationship with China to buy its oil exports after the US offered India a deal whereby tariffs could be cut if India halts buying Russian Urals. Additionally, Indian refiners would have access to Venezuelan exports. No official action has yet to be taken by the Indian government in terms of such a ban. One of the buyers of Venezuelan oil from the US, Vitol, has supposedly sold 2.0 million bbl to some Indian refineries. Venezuela’s exports for January averaged about 800,000 b/d, up from December’s 500,000 b/d. US refiners are having a hard time taking all of the volumes of Venezuelan heavy crude.
Meanwhile, Mexico’s Pemex has vowed to continue to supply Cuba with oil despite pressure from the Trump administration to cease sending oil there. Trump has threatened punitive tariffs against any country that supplies oil to the isolated island nation.
The Energy Information Administration’s (EIA) Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week declined while total US oil production was 13.2 million b/d last week vs. 13.5 last year at this time. The Strategic PetroleuM Reserve (SPR) was up 200,000 bbl to 415.2 million bbl.
The US Labor Department reported this week that job openings in December unexpectedly fell to their lowest level since mid-2020 during the heart of the pandemic. Additionally, layoff announcements last month amounted to over 100,000 planned and private payroll firm ADP shows only 22,000 jobs were added in January. All 3 major US stock indexes rallied last this week despite the jobs report as tech stocks, other than Amazon, were up on less AI ‘doom and gloom.’ The Dow pushed past the 50,000 mark for the first time ever and was higher week-on-week while the S&P and NASDAQ were lower. The USD was higher which could put a cap on oil prices. Gold has come off from its recent highs and is back below the $5,000/oz. level but higher on the week.
