Oil prices have fallen this week, finally heading back down after their five-week long upward trek. The holiday season and anticipation of the presidential inauguration sustained market exuberance, but as noted in our earlier columns, fundamentals remain bearish: raging COVID-19 infections, a disorganized vaccination program, curtailed demand and rising unemployment. Also, oil inventory data was delayed this week due to the Martin Luther King Jr. holiday, and a stock build may add to bearish sentiment. Traders are taking profits today. Prices continue to be supported, however, by the rollout of plans to coordinate and expand COVID-19 vaccination programs, a $1.9 billion proposal for another federal economic stimulus package, OPEC+ crude production restraint, and a weak U.S. dollar. Prices today are creeping back up after a sizeable drop overnight and early this morning. Even with this week’s price decline, WTI crude prices remain around $52 a barrel, a price level not seen since last February.

There is a sense that months of hard work are ahead for the country, but that the work is now underway. The oil industry will have to adjust to a new administration that has placed high priority on environmental protection and global climate change. This was not unexpected, nor will change come swiftly. President Biden plans to review approximately 100 environmental quality rules and regulations that were weakened or rolled back under the Trump Administration, and legal experts warn that this will take years. The Energy Information Administration (EIA,) recently revised upwards its forecast of crude prices in 2021, and this seems consistent with early perceptions of the Biden-Harris administration. For example, President Biden on Thursday withdrew approval for the Keystone XL Pipeline project. However, TC Energy, formerly named TransCanada Corp., preemptively suspended construction of the embattled project. The expansion, in the works since 2008, was intended to widen export options for low-cost Canadian crudes and debottleneck transport from landlocked shale formations in the northern U.S. There was widespread opposition along the line’s route, which impacted Native American lands. Many believe the project will elevate greenhouse gas emissions and perpetuate fossil energy dependence.

Canada has emerged as the premier source of U.S. crude imports. As the following figure illustrates, Canadian crude exports to the U.S. had been growing steadily until 2020, when the COVID-19 pandemic cut into demand. In 2005, U.S. imports of Canadian crude averaged 1,633 barrels per day (kbpd.) This grew to 3,814 kbpd in 2019 before declining to 3,573 kbpd during the first 10 months of 2020. The availability of inexpensive Canadian crude combined with the U.S. shale boom allowed the U.S. to cut crude imports drastically from OPEC countries. Imports of OPEC crude plummeted from 4,816 kbpd in 2005 to just 892 kbpd during the January-October period of 2020. It is not clear whether eliminating the line expansion will reduce future Canadian production or U.S. imports unless both countries adopt more comprehensive plans to reduce fossil energy production and use. It is possible that reducing Canadian crude imports via pipeline will have mixed or unusual consequences, such as rerouting crude oil to rail cars, replacing some Canadian crudes with OPEC crudes, and favoring U.S. Gulf Coast shale plays above northern U.S. shale plays.

US-Imports-of-Canadian-crude-have-risen-while-imports-from-OPEC-countries-fallen

Source: U.S. Energy Information Administration

The unemployment situation remained severe this week. According to data collected by the Department of Labor, 900,000 people filed initial unemployment claims during the week ended January 16, down by 26,000 from the prior week’s revised level of 926,000. Initial weekly claims had finally subsided below the one-million mark at the end of August, but it took until mid-October before claims finally fell below 800,000. By November, unfortunately, COVID-19 infections began to surge again, and initial unemployment claims began to climb. Prior to the pandemic, initial claims were typically 200,000–220,000 each week. During the 44 weeks since U.S. states began to issue shelter-in-place orders, nearly 75.7 million Americans have filed initial jobless claims.

The U.S. continues to suffer high levels of COVID-19 infections, deaths, and hospitalizations. Approximately 120,000 COVID-19 patients are hospitalized. A new daily death record of 4,409 was set on January 20, and deaths have surpassed 410,000 in the U.S. Finally, however, the country may be at a turning point. According to the COVID Tracking Project, the holiday reporting backlogs may be behind us, and rates of new cases, hospitalizations, and deaths may finally begin to turn down. Late-April brought a peak of 35,958 new daily cases. Mid-July brought a second peak of 76,550 new daily cases. The Johns Hopkins Coronavirus Resource Center reports that global cases of COVID-19 stand at 97,645,892, with 2,094,191 deaths. The U.S. continues to lead the world with 24,633,805 cases and 410,383 deaths.

WTI crude futures prices opened at $53.10 a barrel today, down by $0.70 a barrel (1.3%) from last Friday’s open of $53.80 a barrel. WTI futures prices finally began to ease this week, falling off after five weeks of upward momentum. Market optimism remains, but the coming weeks will need to show serious progress in battling the COVID-19 pandemic and re-opening the economy. Release of some market data was delayed this week, and an oil inventory build could prompt additional selling. WTI crude is trading in the range of $51.44-$53.16 a barrel currently. Prices have fallen today, and the week appears to be heading for a finish in the red. Our weekly price review covers hourly forward prices from Friday, January 15 through Friday, January 22. Three summary charts are followed by the Price Movers This Week briefing, which provides a more thorough review.

Gasoline Prices

Gasoline-Prices_012221

Source: Prices as reported by DTN Instant Market

Gasoline futures prices opened at $1.5509 a gallon today on the NYMEX, compared with $1.5597 a gallon last Friday. This was a decline of 0.88 cents (0.6%). Before this, prices had been rising for five consecutive weeks. U.S. average retail prices for gasoline rose by 6.2 cents to average $2.379/gallon during the week ended January 18. Gasoline futures contracts are falling today, trading in the range of $1.5074/gallon to $1.5515/gallon. This week appears to be heading for a finish in the red. The latest price is $1.5274/gallon. 

Diesel Prices

Diesel-Prices_012221

Source: Prices as reported by DTN Instant Market

Diesel opened on the NYMEX today at $1.6013/gallon, down by 1.88 cents, or 1.2%, from last Friday’s open of $1.6201/gallon. Until this week, diesel futures prices had risen for five consecutive weeks. U.S. average retail prices for diesel rose by 2.6 cents per gallon during the week ended January 18 to reach an average of $2.696/gallon. Diesel prices had been weakening this year until November and December brought a price rebound. Currently, diesel futures prices are recovering after an overnight/early morning downturn. The week appears to be headed for a finish in the red. Contracts are trading in the range of $1.5586-$1.6014/gallon. The latest price is $1.5782/gallon.

WTI Crude Prices

Crude-Prices_012221

Source: Prices as reported by DTN Instant Market

WTI crude futures prices opened at $53.10 a barrel today, down by $0.70 a barrel (1.3%) from last Friday’s open of $53.80 a barrel. Until this week’s downturn, WTI prices had risen for five consecutive weeks. Despite today’s price decline, WTI futures prices remain at their highest levels since last February. Recently, prices have been propelled by overall market optimism, progress on COVID-19 vaccine logistics, President Biden’s proposal for a massive stimulus package, OPEC+ production cuts, and a low U.S. Dollar index. Forward-looking market optimism has been strong despite high levels of COVID-19 infections, hospitalizations, and deaths, and the high levels of unemployment. The COVID Tracking Project believes, however, that the U.S. may be at a turning point in the pandemic, and that better times are ahead. Futures contracts are trading in the range of $51.44-$53.16 a barrel currently. Prices are creeping back up after a sharp downward movement overnight and early this morning. The week is headed for a finish in the red. The latest price is $52.40 a barrel.

PRICE MOVERS THIS WEEK: FULL BRIEFING

Oil prices have fallen this week, finally heading back down after their five-week long upward trek. The holiday season and anticipation of the presidential inauguration sustained market exuberance, but as noted in our earlier columns, fundamentals remain bearish: raging COVID-19 infections, a disorganized vaccination program, curtailed demand, and rising unemployment. Also, oil inventory data were delayed this week, and a stock build may add to bearish sentiment. Traders are taking profits today. Prices continue to be supported, however, by the rollout of plans to coordinate and expand COVID-19 vaccination programs, a $1.9 billion proposal for another federal economic stimulus package, OPEC+ crude production restraint, and a weak U.S. dollar. Prices today are creeping back up after a sizeable drop overnight and early this morning. Even with this week’s price decline, WTI crude prices remain around $52 a barrel, a price level not seen since last February.

There is a sense that months of hard work are ahead for the country, but that the work is now underway. The oil industry will have to adjust to a new administration that has placed high priority on environmental protection and global climate change. This was not unexpected, nor will change come swiftly. President Biden plans to review approximately 100 environmental quality rules and regulations that were rolled back or weakened under the Trump Administration, and legal experts warn that this will take years. The Energy Information Administration (EIA,) recently revised upwards its forecast of crude prices in 2021, and this seems consistent with early perceptions of the Biden-Harris administration. For example, President Biden on Thursday withdrew approval for the Keystone XL Pipeline project. However, TC Energy, formerly named TransCanada Corp., preemptively suspended construction of the embattled project. The expansion, in the works since 2008, was intended to widen export options for low-cost Canadian crudes and debottleneck transport from landlocked shale formations in the northern U.S. There was widespread opposition along the line’s route, which impacted Native American lands. Many believe the project will elevate greenhouse gas emissions and perpetuate fossil energy dependence.

Canada has emerged as the premier source of U.S. crude imports. As the following figure illustrates, Canadian crude exports to the U.S. had been growing steadily until 2020, when the COVID-19 pandemic cut into demand. In 2005, U.S. imports of Canadian crude averaged 1,633 barrels per day (kbpd.) This grew to 3,814 kbpd in 2019 before declining to 3,573 kbpd during the first 10 months of 2020. The availability of inexpensive Canadian crude combined with the U.S. shale boom allowed the U.S. to cut crude imports drastically from OPEC countries. Imports of OPEC crude plummeted from 4,816 kbpd in 2005 to just 892 kbpd during the January-October period of 2020. It is not clear whether eliminating the line expansion will reduce future Canadian production or U.S. imports unless both countries adopt more comprehensive plans to reduce fossil energy production and use. It is possible that reducing Canadian crude imports via pipeline will have mixed or unusual consequences, such as rerouting crude oil to rail cars, replacing some Canadian crudes with OPEC crudes, and favoring U.S. Gulf Coast shale plays above northern U.S. shale plays.

US-Imports-of-Canadian-crude-have-risen-while-imports-from-OPEC-countries-fallen

Source: U.S. Energy Information Administration

The unemployment situation remained severe this week. According to data collected by the Department of Labor, 900,000 people filed initial unemployment claims during the week ended January 16, down by 26,000 from the prior week’s revised level of 926,000. Initial weekly claims had finally subsided below the one-million mark at the end of August, but it took until mid-October before claims finally fell below 800,000. By November, COVID-19 infections began to surge again, and initial unemployment claims began to climb. Prior to the pandemic, initial claims were typically 200,000–220,000 each week. During the 44 weeks since U.S. states began to issue shelter-in-place orders, nearly 75.7 million Americans have filed initial jobless claims.

The U.S. continues to suffer high levels of COVID-19 infections, deaths, and hospitalizations. Approximately 120,000 COVID-19 patients are hospitalized. A new daily death record of 4409 was set on January 20, and deaths have surpassed 410,000 in the U.S. Finally, however, the country may be at a turning point. According to the COVID Tracking Project, the holiday reporting backlogs may be behind us, and rates of new cases, hospitalizations, and deaths may finally begin to turn down. Late-April brought a peak of 35,958 new daily cases. Mid-July brought a second peak of 76,550 new daily cases. The Johns Hopkins Coronavirus Resource Center reports that global cases of COVID-19 stand at 97,645,892, with 2,094,191 deaths. The U.S. continues to lead the world with 24,633,805 cases and 410,383 deaths.

U.S. oil inventory data was delayed this week because of the Martin Luther King Jr. Day holiday on Monday and Inauguration Day on Wednesday. The American Petroleum Institute (API,) however, reported across-the-board stock builds: a crude stock build of 2.6 mmbbls, a gasoline stock build of 1.1 mmbbls and a distillate stock build of 0.8 mmbbls. Industry experts are expecting the EIA data to show a small crude stock draw outweighed by gasoline and diesel stock builds. In recent weeks, U.S. crude stocks have been drawn down, but product inventories have risen as the COVID-19 pandemic has worsened and demand has fallen. This may be the week when the EIA reports that crude stocks have halted their downward trend, and if so, traders may continue today’s selloff.