Crude oil edged higher to settle at 79.28, up +0.5%, Wednesday as the EIA report showed inventory draw in crude and major oil products. Tension between Iran and the Western world, potential oil exports from OPEC and market optimism after strong macro-economic data also boosted price. The February contract, currently trading at 79.6, is prone to record the third weekly gain. Crude oil price, surging almost +80% in 2009, will probably record the biggest annual increase since 1999.
According to the US Energy Department, crude inventory drew -1.54 mmb to 326 mmb in the week ended December 25. Cushing stock also drew -0.19 mmb. For oil products, distillate stockpile dipped -2.06 mmb (consensus: -2.23 mmb) to 159.3 mmb. This an initial sign of moderation in the pace of inventory draw. Gasoline inventory also dropped -0.37 mmb to 216 mmb.
Decline in inventory levels in recent weeks has been sending a positive signal to investors that the energy market is improving. This is also the major reason for oil's rally these 2 weeks. However, details in fuel demand suggest we should be more cautious. 4-week averaged demand for gasoline was 9.024M bpd, compared with 9.041M bpd the same period in 2009, while the 4-week averaged demand for distillate, at 3.689M bpd , was -8.8% below the same period last year.
Since the protest began on December 27 in Tehran, the Iranian government has detained about 1000 people. At the same time, Iran accuses Western countries of spurring the demonstrations. Oil prices usually get supported when turmoil occurs, especially in the Middle East as the region in rich in oil. Iran, the world's second largest oil producer, may threaten to suspend oil exports if the tension escalates.
At December's OPEC meeting, the members voted unanimously to keep production quotas unchanged but pledged to increase compliance. According to Oil Movements, OPEC will reduce shipments to 22.89M bpd in the 4 weeks ending January 9. This will be the first cut in 2 months and indicates the organization's determination to limit output.
Gold price slid for a third consecutive day to as low as 1086.6 before rebound. The benchmark contract lost -0.5% to 1092.5. Today in Asia, gold recovers to 1098 as USD retreats. The weight of gold futures will increase in Dow Jones USD Commodity Index next year. The agency said that New York gold futures will make up 9.1% (currently 7.86%) of the index when the gauge is rebalanced in January 2010. The news should push gold price higher.
Trading is thin in New Year Eve and we do not have many events to watch today. US' initial jobless claims probably increased to 455K from 452K in the prior week. Natural gas inventory should have dropped -143 bcf in the week ended December 25.