Crude Oil Market Report: Rough Water Ahead

For the week ending 4 December 2020, US commercial crude inventories increased 15.2m to 503.2m. After several weeks of relatively muted weekly changes, this week's sharp increase caught markets off-guard. US crude production was flat for the week at 11.1 mb/d. Net crude imports rose sharply for the week to 4.645 mb/d from 1.943 mb/d. Exports declined sharply to 1.834 mb/d down 1.622 mb/d. Total products supplied to the market increased modestly to 17.534 mb/d.

Over the past several weeks, crude prices have increased sharply (along with many other financial asset classes) in hopes that the COVID-19 vaccine approvals would mean a sharp economic recovery in the first half of 2021. In the past month, crude traders front-running vaccine news pushed prices up roughly 15 percent, with both WTI and Brent presenting sitting at $46 and $49, respectively. A few days ago, Brent breached the $50 mark, a level not seen since early 2020. Unfortunately, US inventories are telling quite a different story. US commercial crude inventories are presently 55m ahead of last year's (elevated) levels, and production appears to have leveled off around 11 mb/d. This indicates there remains quite a significant overhang of supply in the markets. While the vaccine is expected to control COVID-19 infections, which should boost economic activity, the manufacture, distribution, and administration of vaccines to the general public remain several months away – most experts forecast June/July of 2021.

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Richard Soultanian

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