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Oil complex settles higher on dollar weakness, stock draws

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Oil complex settles higher on dollar weakness, stock draws

New York — Petroleum futures settled higher Dec. 23 on US dollar weakness following news of a possible post-Brexit deal, and on inventory draws reported by the US Energy Information Administration.

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NYMEX front-month crude settled at $48.12/b, up $1.10/b, while ICE front-month Brent settled at $51.20/b, up $1.12.

NYMEX front-month RBOB settled at 1.382/gal, up 4.25 cents, while front-month ULSD settled at 1.4975/gal, up 3.59 cents.

OANDA analyst Ed Moya attributed the rally primarily to US dollar weakness following news that the UK and European Union were getting close to a post-Brexit trade deal. According to the Wall Street Journal, the deal could be announced later Dec. 23.

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"Energy traders are primarily reacting to dollar weakness and news that the US has already vaccinated over 1 million Americans," Moya said, referring to an increase in coronavirus vaccinations.

US refined products inventories fell last week as implied demand increased, EIA data showed Dec. 23.

US gasoline stocks fell 1.13 million barrels to 237.75 million barrels, while distillate stocks fell 2.33 million barrels to 148.93 million barrels. Analysts polled by S&P Global Platts had been expecting gasoline stocks to rise 1.4 million barrels, and distillate stocks to fall by 1.1 million barrels.

Gasoline production edged higher last week, but implied demand climbed for the second straight week to 8.02 million b/d, up 422,000 b/d from the week ending Dec. 4, the EIA data showed.

Apple Mobility data showed US driving activity was at a four-week high last week after climbing for a second straight week.

Still, implied demand on a four-week moving average at 7.9 million b/d was roughly 14% below the five-year average.

US implied distillate demand also climbed last week, up 172,000 b/d to 4.17 million b/d, the EIA data showed. That put implied demand at just 91,200 b/d below the five-year average.

A 1.58-million barrel decline in US Atlantic Coast low sulfur diesel stocks was supportive for the New York-delivered NYMEX ULSD contract. Still, at 56.36 million barrels last week, combined low and ultra low sulfur diesel inventories were well-supplied, at a 24% above the five-year average.

US distillate production at 4.59 million b/d last week was 685,000 b/d below the five-year average.

Stock draws boost crack spreads

The distillate stock draw boosted the NYMEX ULSD crack spread to ICE Brent. The front-month crack was trading around $11.66/b towards the settle, up from $11.37/b Dec. 22, and up from $9.55/b Dec. 1.

The NYMEX RBOB crack against ICE Brent was trading around $6.57/b late Dec. 23, up from $6.01/b Dec. 22 and $4.35/b Dec. 1.

With diesel crack spreads trading at a premium to gasoline crack spreads, refiners have an incentive to boost diesel production.

However, refiners might be discouraged by the inventory surplus, and the downside risk to refinery margins should an increase in production add to that surplus.

Much will depend on export markets, primarily in Latin America and Europe. US distillate exports averaged 1.19 million b/d last week, according to the EIA, up from 815,000 b/d two weeks prior, although down 257,000 b/d on the year.

Kpler vessel tracking data shows US distillate exports falling for the week ending Dec. 28 and into January.

Coronavirus lockdowns pose a threat to US gasoline exports, which, according to the EIA, have fallen over the past two weeks. Mexico City, for instance, imposed more severe restrictions over the past weekend, which some suspect may be adopted by other parts of the country. Mexico is the single largest buyer of US gasoline and diesel.

US crude inventories fell 570,000 barrels last week to 499.53 million barrels, EIA data showed. The draw fell short of expectations as analysts polled by S&P Global Platts were looking for stocks to fall by 4.7 million barrels.

Net crude inputs fell 169,000 b/d to 14.01 million b/d, while imports climbed 140,000 b/d to 5.56 million b/d, and US production was unchanged at 11 million b/d. Crude exports were little changes, rising 67,000 b/d to 2.75 million b/d, the EIA data showed.

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