Brent pulled back on technical exhaustion and somewhat disappointing US inventories. Brent crude rose to a high of USD 77.89/b yesterday before selling off along with disappointing US inventory data. It ended the day at USD 76.16/b, down 1.2% from the day before and 2.3% from the intraday high. The RSI measure came very close to overbought level at 70 at the middle of the day. Rises in Brent prices have consistently been rejected further advances earlier when that has happened. Same thing yesterday. The 200 dma also stayed out of reach, though it is not too far away at USD 79.1/b. This morning Brent is trading mostly unchanged at USD 76.1/b. Disappointing Chinese CPI (0.1%) and PPI (-2.3%) measures for December are strong indications that the Chinese economy has not yet turned the corner and are essentially bearish signals for oil though too fluffy and far removed from the physical oil market to impact the oil price directly today.

US crude stocks only fell 1 m b and not 4. Expectations for US oil inventories were quite high as API had indicated on Tuesday that US crude stocks fell 4 m b last week though API did warn for a strong rise in US oil product stocks. Actual data showed that US crude stocks only declined by 1 m b while oil product stocks rose strongly with gasoline stocks up 6.3 m b and diesel stocks up 6.1 m b. The report was a disappointment vs. API in terms of crude declines, but in total the API wasn’t all that off.

US Cushing crude stocks at lowest seasonal level since 2008 is lifting eyebrows. What is disturbing the market is that crude stocks at Cushing Oklahoma where WTI is priced fell 2.5 m b last week following a steady decline through 2024. The current level is the lowest seasonal level since 2008 and the lowest level overall since 2014. The oil market had a nasty experience the other way around in 2020 when WTI on technical, local storage issues, traded down to minus USD 38/b. The price of WTI is specifically set at the Cushing hub and away from the seaborne market. There is thus always a theoretical risk that technical, local issues could take over and divert the price radically away from the global seaborne benchmarks.

Local US price signals will likely sort out the Cushing issues. We do not know the reason for why the crude oil inventory levels at the Cushing hub have fall as low as they have. It is not a symptom of the world or the US running dry on crude oil. It is probably a consequence of US market preferences, pipeline flows, US local oil price spreads and also storage economics in Cushing. So, if conditions at Cushing becomes critical enough these market preferences and price signals will likely change in order to drive Cushing stocks to a level where sufficient operational needs.

Changes in US crude and product stocks last week in m b.

US commercial crude and product stocks versus the 2015-19 average.

US Cushing crude stocks at lowest seasonal level since 2008 and lowest overall since 2014.

Propelled higher as the crude oil complex strengthens. Brent crude gained another 1% yesterday with a close of USD 77.05/b and an intraday high of USD 77.3/b. It traded initially in a normal reverse to the USD index, but in the end, it took little notice of the dollar which gained 0.4% on the day with Brent crude gaining 1% as well. One to three months’ time-spreads continued to inch higher either as a reflection of tight crude fundamentals or rising front-end speculative positions or both. Brent is gaining another 1% this morning to USD 77.8/b fueled higher by indications by API that US stocks fell 4 million barrels last week while Russian crude oil shipments fell to 16-months low into the start of 2025. One to three months’ time-spreads continues to rise this morning with the average for Brent, WTI and Dubai rising to the highest since late September last year.

Crude oil stocks set to fall further with good help from Russian crude shipments at 16 mths low. But oil products seem to be a different story. The backdrop for the crude oil price rally into the new year clearly seems to come from crude oil fundamentals which has helped to drive time-spreads higher, Saudi Arabia official selling prices higher and crude stocks lower. API yesterday indicated that US crude oil stocks fell 4 m b last week. But it also indicated that US gasoline stocks rose by 7.3 m b with diesel stocks probably up 3.2 m b. So overall the API report wasn’t all that bullish except for the fact that crude fundamentals continued to tighten. Genscape has indicated that ARA crude stocks fell 3.9 m b over week ending 3 January. Russian crude exports down to 16 months low probably helps to explain part of the strengthening of the crude complex.

Brent will likely trade USD 80-90/b if the 1-3 months’ crude oil time-spreads rises to USD 1.5-2.0/b. The average 1-3 months’ time-spread for Brent, WTI and Dubai this morning is USD 1.39/b vs only USD 1.2/b yesterday versus only USD 0.73/b in December 2024. If we look at guidance for the relationship between these time-spreads versus Brent crude 1 month flat-price we see that if this Brent, WTI and Dubai 1-3 months’ time-spread is trading in the range of USD 1.5 – 2.0/b then the Brent crude 1-month contracts should trade in the range of USD 80-90/b. If the crude fundamentals and time-spreads continues to strengthen, then we should naturally trade in the range of USD 80-90/b with further upside to come from the current USD 77.8/b.

The front-month Brent crude oil price versus the 1-3 months’ time-spreads. Trading in high sync.

The Brent crude oil price versus the average of 1–3 months’ time spreads for Brent, WTI and Dubai in USD/b. In 2024 Brent typically traded USD 80-90/b when the time-spreads were in the range of USD 1.5-2.0/b. So further strengthening of the crude oil complex with yet higher time-spreads will likely shift the Brent flat-price to USD 80-90/b.

The technical picture is getting challenging. Pullbacks and struggle in the high 70ies likely. The technical picture has however started to become challenging as the RSI has moved very close to overbought. Thus, even if the crude fundamentals continue to strengthen, we’ll likely experience some pullbacks as we hit the 200 dma currently at USD 79.14/b. So, Brent crude will likely struggle for a little while in the high-70ies before breaking into the 80ies.

The Brent crude 1mth contract vs RSI and 50, 100 and 200 dma. Now very close to overbought.

The USD was an important intraday driver. Brent crude traded between USD 75.9/b and USD 77.5/b ydy before it settled down 0.3% on the day at USD 76.3/b. Swings in the USD was probably an important driver for the intraday fluctuations. Though higher Saudi Official Selling Prices also helped to bolster the bullish sentiment intraday. This morning Brent crude is trading in a narrow range so far and marginally lower at USD 76.2/b (-0.2%).  The USD is however seeing some renewed weakness again today and that is some bewilderment for the direction of oil today. It is probably tempting to take some profit following the recent highs, but if the USD weakens further, then there is probably more upside to come.

Brent crude is totally at the mercy of OPEC+, but the group will stay the course through 2025. The current oil price is totally at the mercy of OPEC+. The group is planning to put volumes back into the market in 2025 and that places somewhat of a cap on the upside. The group really proved its resolve repeatedly in 2024 and the oil market now probably feels quite confident that it will stay the course also in 2025 and supply volumes in a manner that yields an acceptable price of USD 70 – 80/b.

There are some fundamental strengths in the crude oil market which is propelling crude prices higher. The fact that Saudi Arabia lifted its Official Selling Prices (OSPs) for February adds to this narrative. There is no panic whatsoever in the Saudi-camp. It also tells a story of a fairly robust picture for the physical crude market in Q1-25. Saud Aramco can see forward some 2-3 months through the orders to its physical oil book which is providing oil to consumers all around the world. Dubai time-spreads strengthened already in December and speculators may have taken queues from that to roll into long positions. Speculators have actually added length through most of the autumn since a low-point in mid-September.

US Cushing crude stocks at 17-year low and sharply falling global floating crude stocks.  Adding to the bull-side is US Cushing crude stocks (where WTI is priced) at 17 years seasonal low. Global floating crude stocks have also fallen sharply over the past week, but those data are very volatile and may revert on short notice.

Net long speculative positions in Brent crude and WTI in million barrels

52-week ranking of net long speculative positions compared to 52-week ranking of Brent crude 1–7-month curvature.

Global floating crude stocks in million barrels