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Bearish EIA Report Tempers Oil Market Momentum Amidst Ongoing Middle East Tensions

by Krystal

In the wake of a bearish Energy Information Administration (EIA) report on Wednesday, the oil market witnessed a retracement of gains. Despite this, geopolitical tensions in the Middle East persist, with Houthi rebels launching a sea drone in the Red Sea, a US airstrike in Baghdad claiming the life of a commander from an Iranian-backed militia group, and the Islamic State claiming responsibility for two explosions in Iran earlier this week.

The most recent EIA release revealed a decline of 5.5 million barrels in US commercial crude oil inventories over the week. However, the product side experienced substantial builds, with gasoline inventories surging by 10.9 million barrels and distillate stocks growing by 10.09 million barrels. Since mid-November, US gasoline inventories have risen by over 21 million barrels, surpassing the 5-year average. Distillate stocks have also increased by slightly more than 20 million barrels during the same period, although still trending below the 5-year average. These significant product builds can be attributed primarily to weakened demand, with implied gasoline demand dropping by 1.21 million barrels per day (bbls/d) WoW, and implied distillate demand falling by 1.32 million bbls/d. The notable distillates build is expected to do little to alleviate the broader weakness observed in middle distillate cracks in recent months.

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Across the Atlantic, Insights Global’s latest stock data indicates a 72,000-tonne WoW increase in refined product inventories in ARA, reaching 5.07 million tonnes. Fuel oil played a significant role in this surge, with stocks increasing by 110,000 tonnes, while jet fuel inventories grew by 51,000 tonnes. Gasoil stocks, however, decreased by 38,000 tonnes to 1.79 million tonnes, maintaining inventories on the tighter side compared to historical averages for this time of year. In Singapore, oil product stocks saw a 114 million barrels increase over the week, reaching 42.67 million barrels. This growth was exclusively attributed to fuel oil, with stocks increasing by 1.22 million barrels, while light and middle distillate stocks both experienced declines.

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Anticipation surrounds Saudi Aramco’s forthcoming release of official selling prices (OSPs) for February loadings. Expectations point to a potential reduction in the OSP for Arab Light into Asia, following a cut of US$0.50/bbl to US$3.50/bbl over the benchmark for January.

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Nickel’s Lingering Underperformance Extends into 2024

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Nickel’s downward trend persisted for the fifth consecutive session, marking a decline of more than 3% since the beginning of the year. Having been the worst-performing metal on the London Metal Exchange (LME) in the previous year, nickel experienced a staggering 45% drop in prices.

A key factor contributing to nickel’s continued underperformance is the surge in supply from Indonesia, the world’s leading nickel producer. The ongoing increase in output from Indonesia is expected to exert continued pressure on nickel prices throughout the year. Concurrently, inventories on the LME have surged by over 60% since November, rebounding from historical lows, while stockpiles on the Shanghai Futures Exchange (SHFE) have reached a three-year high. The persistent surplus in the nickel market suggests that prices are likely to remain under pressure through 2024.

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