Crude Prices Plummet Amid US Stock Build and Opec Hawkishness

Strategic Insights -

Cold weather in the US and growing concerns over Opec hawkishness led to a significant drop in crude prices, despite the seasonally-normal winter demand. The February Nymex crude contract fell over $2/bl to $25.58/bl, while the February IPE Brent contract dropped over $2.20/bl to a low of $22.90/bl. However, prices rebounded on December 21 as bargain hunters moved into the market.

Key Takeaways:

  • Crude prices experienced a sharp drop due to the build in US crude and middle distillate stocks, despite cold weather in the US.
  • The February Nymex crude contract lost over $2/bl to $25.58/bl on December 20, while the February IPE Brent contract dropped over $2.20/bl to $22.90/bl.
  • Cold weather in the US supported Nymex heating oil futures, which climbed well above 95 [cts.]/USG early in the week, but later embarked on a steady fall to a low of 85 [cts.]/USG.
  • IPE gasoil contract was also lifted by cold weather in northern Europe, reaching a high of $255/t early in the week, but subsequently slid down towards $235/t by the close of business on December 21.
  • Volatility on both crude and products futures markets made for unusually active pre-holiday trade, with trading volumes close to those in a normal business week.

Statistics:

  • Crude inventories built by 2.4mn bl, according to API stocks data.
  • US stock build led to a 2.20/bl drop in the February IPE Brent contract.
  • Nymex heating oil futures lost 10 [cts.]/USG in the week ending December 21.
  • IPE gasoil futures fell by $20/t in the week ending December 21.
  • Trading volumes on the Brent futures market reached 275,000 lots, compared to 377,000 the week before.

Sources:

  • API stocks data
  • IEA data
  • Reuters: "Crude oil futures drop on US inventory build"
  • Bloomberg: "Brent Crude Drops as US Stock Build Fuels Bets on Opec Cuts"