CRUDE OIL

Crude oil prices moved back above $100 a barrel and are modestly below their recent 8-1/2 month high as the dollar weakened and after weekly DOE crude inventories unexpectedly declined.  Bullish factors include (1) the slide in the dollar index to 2-week low, (2) the unexpected decline in weekly DOE crude supplies (-3.44 million bbl versus  expectations of a +3.0 million bbl build), (3) carry-over strength from a rally in gasoline prices to a 3-month high on concern gasoline supplies to the U.S. East Coast may tighten after Hovensa LLC said it will shut its 350,000 barrel-a-day St. Croix refinery in the U.S. Virgin Islands because of mounting losses and weak demand, and (4) comments from Saudi Arabian Oil Minister Ali al-Naimi who said that Saudi Arabia aims to stabilize the average crude price worldwide at $100 a barrel in 2012.  Bearish factors include (1) the larger-tan-expected increase in weekly DOE gasoline supplies which rose +3.72 million bbl to a 10-month high of 227.5 million bbl, (2) slack demand after the DOE said U.S gasoline demand for the week ended Jan 13 fell -2.2% to 8 million barrels a day, the weakest in over 10 years, and (3) Q4 China GDP of +8.9% y/y, the weakest pace of growth in 2-1/2 years and signals reduced fuel demand in the world’s second-largest crude consumer. 

Fundamental Outlook—Bullish Consolidation— Crude oil popped back up above $100 a barrel on an unexpected decline in weekly DOE crude inventories and a weaker dollar.  Oil prices also remain supported by U.S. economic strength and geopolitical concerns as Iran threatens to close the Strait of Hormuz if sanctions are imposed on its crude exports.  Medium-term bearish factors include (1) weak U.S. fuel demand, (2) increased OPEC and record Russian crude output, (3) global economic concerns, and (4) the resumption of Libyan production.

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