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Oil down 4th day; U.S. crude clings to $70 support after big products build

Commodities Dec 07, 2022 02:29PM ET
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By Barani Krishnan

Investing.com -- Oil bulls can’t seem to catch an easy break. 

Just as China appeared to have relaxed in a big way its Zero-COVID policy, U.S. oil inventory data showed a huge build in petroleum products that outweighed the nation’s weekly draw in crude. That sent oil prices plunging for a fourth straight day, to end at near one-year lows.

New York-traded West Texas Intermediate, or WTI, crude for January delivery settled down $2.24, or 3%, at $72.01 per barrel. The session low for WTI was $71.75, a bottom not seen since its Dec. 22, 2021 trough of $70.80. The U.S. crude benchmark has lost almost 12% since its last positive close of $81.33 on Dec. 1. Week-to-date, the U.S. crude benchmark is down about 11%.

London-traded Brent crude for February settled down $2.18, or 2.8%, at $77.11. It earlier hit a session low of $76.95, a level not seen since its Dec. 27 bottom of $75.75. The global crude benchmark has lost 11% since its last positive close of $86.88 on Dec. 1. Week-to-date, Brent is down about 10%.

Oil’s latest slide came after the U.S. Energy Information Administration, or EIA, reported a combined build in gasoline and distillate inventories for last week that came in above the drawdown in crude.

Crude inventories dropped by 5.187 million barrels, against expectations for a draw of 3.305M barrels, the EIA said in its Weekly Petroleum Status report for the period covering Nov. 25-Dec. 2.

But distillate stockpiles  rose by 6.159M barrels for the same week, compared with expectations for a build of 2.208M barrels. 

Gasoline inventories also rose by 5.320M barrels, against expectations for a build of 2.707M barrels.

“It’s not a great story by any stretch for anyone who’s long crude,” said John Kilduff, partner at New York energy hedge fund Again Capital. “The net build in products is above the so-called outsized draw in crude. Demand wise, indicators for gasoline and distillates, including jet fuel, aren’t really scaling in any way.”

Finished motor gasoline in the marketplace were at 8.358 million barrels per day last week, up just by 41,000 barrels per day.

Distillates fuel oil, meanwhile, saw a decline of 106,000 barrels per day in demand to 3.55M barrels daily.

Kerosene-type jet fuel also saw a drop, of 344,000 barrels per day, to reach 1.386M barrels daily last week.

Oil prices came off their lows earlier in the day after China announced changes to its coronavirus containment procedures that signaled a pivot from the Zero-COVID policy in the world’s largest oil importer. Beijing relaxed rules which included allowing infected people with mild symptoms to quarantine at home and dropping testing for people traveling domestically.

Even so, health experts warned that China was underprepared for any surge in COVID cases hereon and it was not known yet how the situation would progress in the weeks and months ahead.

Oil down 4th day; U.S. crude clings to $70 support after big products build
 

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Comments (7)
amt hun
amt hun Dec 07, 2022 4:53PM ET
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No big deal.
Ernie Keebler
Ernie Keebler Dec 07, 2022 4:27PM ET
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They've been squeezing the truckers all summer because goods had to move amid supply chain issues, that's mostly over. Cash diesel has been way overvalued based on futures the last 2 months, it will come back to reality soon with sub $4 diesel.  We still have oversupply of crude world-wide based on expected useage
Barani Krishnan
Barani Krishnan Dec 07, 2022 4:27PM ET
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Thanks much for your clarity and perspective, Ernie, which, unfortunately, will be very unpopular with the crowd here :)
Wendell Ayala
Wendell Ayala Dec 07, 2022 3:53PM ET
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Of course they are going to drop the price of oil. Consumers need money to buy Xmas gifts...
Adamo Nals
Adamo Nals Dec 07, 2022 3:08PM ET
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All you have to do is look at the global supplies. It’s available to anyone who wants to see the numbers. And the entire globe is short so much oil reserves it’s not even funny. Parabolic for oil is not even a good enough word. This is when you buy as much energy and oil stocks as you can afford. Because they’re only going up from here. Perfect balance sheets, perfect fundamentals, great dividends and are the cheapest stocks in the entire market. 70% of the stock market is over value. Specifically technology. Oil and gas stocks are what you want to be buying every single day. Cost averaging, buy new positions whatever
Barani Krishnan
Barani Krishnan Dec 07, 2022 3:08PM ET
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There is a $30 premium in oil tied to the Ukraine war and the perceived problems for the EU in coping with the winter crunch expected from the ban and cap on Russian oil. So long as the war isn't going to create scary headlines as it did early this year (even Putin's nuclear threat earlier today did nothing for oil) and EU seems relatively insulated (for now), there is little reason for $100 crude. Understand that. Yes, energy equities might be way undervalued compared to tech and I too will urge people to look at them. But crude itself is ideal at around these levels, or maybe a little lower. As the flat price drops, so will the cost of oilfield services providers (who had great fun jacking prices up the past two years). Everything will converge and come to pass. Bests.
Rubbing Hands
Rubbing Hands Dec 07, 2022 1:23PM ET
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keep in mind it's build season for fuel. once china gets rolling again, it will be all up in up. inventories are all still below 5yr average.
Barani Krishnan
Barani Krishnan Dec 07, 2022 1:23PM ET
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Provided the demand kicks in January onwards. We really have to wait and see on this one.
Dave Jones
Dave Jones Dec 07, 2022 12:53PM ET
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Thought there was going to be a massive diesel shortage?
Barani Krishnan
Barani Krishnan Dec 07, 2022 12:53PM ET
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Not really, it seems now. Refiners have really front-loaded the market over the past 3-4 weeks.
Steven White
Steven White Dec 07, 2022 12:34PM ET
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Isnt this why oil companies pay dividens?
Barani Krishnan
Barani Krishnan Dec 07, 2022 12:34PM ET
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Not really sure what's the point of your question.
 
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