Crude Oil Bows to the FX Markets

West Texas Intermediary crude oil futures were trading slightly higher tracking rise in benchmark contracts on the New York Mercantile Exchange, where weak US dollar against the euro supported recovery in oil futures as the US dollar gained crude prices dipped. This morning crude oil is trading at $96.78. U.S. crude-oil futures pared early losses Wednesday after weekly government data showed a smaller increase in crude-oil stockpiles than many analysts were anticipating. The U.S. Energy Information Administration (EIA) released its weekly petroleum status report yesterday showing that U.S. commercial crude inventories increased by 2.6 million barrels last week, bringing the total U.S. commercial crude inventory to 371.7 million barrels, well above the upper limit of the five-year range for this time of the year. Earlier in the week, the American Petroleum Institute reported an inventory increase of 3.63 million barrels in crude supplies last week. Platts estimated a build of 3 million barrels in crude inventories for last week. Dow Jones estimates called for a crude inventory build of 2.9 million barrels, an increase of 900,000 barrels in gasoline supplies and a drop of 600,000 barrels in distillate supplies. Markets showed little reaction to the better than expected inventory.

Saudi Arabia, the world’s largest oil exporter, kept crude oil production steady at 9.05 million barrels per day (bpd) in January, from 9.025 million bpd in December. High inventories along with high output are likely to hurt crude prices.

Energy speculators can expect crude oil prices to go down as investors wait for the ECB press conference and China trade balance data tomorrow to confirm the outlook for demand.

The marquee event of the day week is the Mr. Draghi’s press conference after the ECB meeting today. With the euro trading high and tensions rising between Germany and France over the price of the euro, it is unlikely that Mr. Draghi will talk up the euro, which is weighing heavily on European exporters. Between the strength of the euro and the weakness of the Japanese yen, there are mounting tensions in the FX markets. Whichever way Mr. Draghi leans today, will most likely have an effect on the US dollar index which will weigh on all dollar denominated commodities including crude oil.

U.S. natural gas ended higher on Wednesday, reacting to fairly cold Northeast and Midwest forecasts for the next few days that should drive up the heating demand. Natural gas prices are likely to move up on colder weather forecasts and low inventories expected later. Natural gas is trading at $3.441 this morning.