(+) US Oil Weekly Update: Hawkish Fed and Strong Dollar Pressures Crude Price

More fundamental headwinds for the German and Chinese economy pressures crude prices amidst uncertain markets. China is the worlds second largest economy and the worlds biggest importer of oil, negative data on that front will affect market. Chinese industrial output growth marginally accelerated in November while retail sales came in lower than expected. The Brent premium over WTI slid to a 12-week low to $3.5 looking at February contracts. With a Brent premium below $4 the economic sentiment for traders to send ships to load up on US crude, this could result in lower US exports.

[caption id="attachment_144931" align="alignright" width="239"] WTI Future Contracts: WTI Contracts in Backwardation. (Tip: click the table to view bigger version)[/caption] WTI hoovered above the $70 mark before the Federal Reserve officials announced their third consecutive interest rate cut yesterday. The quarter point cut was mostly expected, although not unanimous. The inflation remains stubbornly above the Feds 2 percent target and with that in mind the Fed signaled in their statement a willingness towards holding rates steady in the future, and perhaps only two rate cuts in 2025. The S&P 500 index reacted negatively following the announcement, while Treasury yields, and the Dollar index reacted positively. With stronger Dollar crude prices fell, and the US benchmark got pressured below the $70 mark.

Figure 1: Fed Interest Rate Decision Pressures WTI Below $70 Level [caption id="attachment_144932" align="alignnone" width="1024"] Investornytt/GE Briefings: Chart West Texas Intermediate[/caption] US Crude inventories and production. US commercial crude oil inventories decreased by 0.934 million barrels in the week ending December 13, with market forecasters predictions at 1.4 million barrels decrease in crude stocks. U.S. commercial crude oil inventories are about 6 percent below the five-year average for this time of year and 22.5 million barrels lower than a year ago. U.S. crude oil refinery inputs averaged 16.6 million barrels per day during the week ending December 13, 2024, which was 48 Kbpd less than the previous week`s average. Refineries operated at 91.8 percent of their operable capacity last week.

Figure 2: US Crude Stocks including SPR at 814.1 million Barrels. [caption id="attachment_144935" align="alignnone" width="1024"] Source: U.S Energy Information Administration[/caption] Figure 3: US Crude Stocks Excluding SPR at 421 million Barrels. [caption id="attachment_144937" align="alignnone" width="1024"] Source: U.S Energy Information Administration[/caption] US Rig Activity The total number of active rigs operating in the US according to Baker Hughes rig count were flat last week, currently at 589. Oil focused rigs were flat last week, still at 482 active rigs. Gas focused rigs increased by one, now at 103 active rigs. Miscellaneous rigs decreased by one, now at four active rigs.

Figure 4: Active Oil Focused Rigs Were Flat for the Week at 482 [caption id="attachment_144934" align="alignnone" width="1024"] Source: Baker Hughes[/caption] Figure 5: Gas Focused Rigs Increased from 102 to 103 Active Rigs [caption id="attachment_144938" align="alignnone" width="1024"] Source: Baker Hughes[/caption] Figure 5: Total Active Rigs in the U.S. Were Falt for the Week at 589 [caption id="attachment_144933" align="alignnone" width="1024"] Source: Baker Hughes[/caption] Figure 6: Rig Count in Major Basins [caption id="attachment_144936" align="alignnone" width="1024"] Source: Baker Hughes[/caption] Baker Hughes has issued the rotary rig counts as a service to the petroleum industry since 1944, when Baker Hughes Tool Company began weekly counts of U.S. and Canadian drilling activity. Baker Hughes initiated the monthly international rig count in 1975. The North American rig count is released weekly at noon Central Time on the last day of the work week.