Oil Market Update

The oil market ended last week on bearish note with ICE Brent settling more than 11.5% lower on Friday. That the lowest close since September.  The latest variant of Coronavirus is causing concern and teh resulting resulting travel restrictions are weighing heavily on crude oil.

​A number of countries have imposed restrictions on flights from parts of Southern Africa, while Israel has shut its borders completely. Given that these restrictions will have the most impact on air travel at the moment, it is no surprise that jet fuel cracks also came under significant pressure. There is also a lack of information on the latest variant and whether is is a significant threat so it is possible that the sell-off on Friday is overdone. Initial reports suggest that symptoms from the Omicron variant are mild, but there are still questions  around how effective current vaccines will be against this latest variant. 

​OPEC+ Meeting

OPEC+ countries are set to meet on Thursday and there is plenty of uncertainty over what the group may do, following the coordinated SPR release from key consumers last week. With the potential for a dip in demand it is possible that OPEC+ will pause current supply increases. 

​Since the initial nreakout of COVID, OPEC+ has taken a cautious approach so they may continue with is approach moving forward. At it's last meeting, they agreed to increase output by 400 million barrels per day in December, so any decision made this week will probably be for January production levels, but given the SPR releases, will they pause furhter supply increases to offset the SPR releases? OPEC’s Economic Commission Board warned that the global oil market could see large surpluses due to these releases, particularly over the early part of next year. 

Crude Inventories

The latest weekly data from the EIA shows that commercial US crude oil inventories increased by 1.02 MMbbls over the last week, while Cushing crude oil inventories increased by 787Mbbls. The increase in commercial inventories was driven by a 245Mbbls/d increase in crude oil imports over the week, whilst oil exports also fell by a significant 1.02MMbbls/d. On the product side, gasoline and distillate fuel oil inventories declined by 603Mbbls and 1.97MMbbls respectively. Implied demand for refined products also edged higher over the week. Overall, the report from the EIA was fairly neutral.