WTI Crude Oil Futures (March)

Yesterday’s Settlement: 71.03, down -1.67 [-2.30%]

WTI Crude Oil futures sold off sharply yesterday as trade tensions between China and the U.S. flared, and the EIA reported an outsized build in crude inventories.

The EIA report was as follows [thousand bbls]:

Crude Oil: +8,664 vs +2,000 estim
Gasoline: +2,233 vs -880 estim
Distillates: -5,471 vs -2,138 estim
Refinery Utilization: +1.00% vs -0.60% estim
Imports of Crude Oil from Mexico reached an all-time low. The low imports from Mexico are the result of PEMEX production levels dropping sharply as the state-owned company struggles to maintain operations and potential tariff fears leading into the week.

Seasonally, commercial crude inventories remain near five-year lows while implied demand remains near five-year highs. Domestically, the fundamental situation may be trending looser, but is by no means looking oversupplied.

Today, futures are higher by +0.42 [+0.59%] to 71.45

The macro environment is trading mixed / risk-on with higher equities, higher crude oil, weaker bonds, and a stronger dollar. The Yen had gained considerable strength overnight but has retraced the majority of its move.

Internationally, Chinese refiners are reportedly reselling previously booked U.S. oil cargoes onto the market as they avoid tariffs. Middle Eastern barrels have repriced higher in anticipation of increased tariff demand flows. If China is going to cut the U.S. out of its import basket entirely, it will need 200k bpd to plug the gap.

Tighter sanctions on Iran and Russia are starting to affect the market, according to Goldman Sachs analysts. They noted a reduction in flows from the two countries is already visible and that tighter sanction enforcement could lead to 1mln bpd being taken off the market.

Bullish catalysts remain, but markets will continue to digest the daily barrage of headlines and commentary coming out of the new administration and technical momentum remains tilted to the downside.

Technical Analysis:

Our key to yesterday’s trade was to see a settlement above our rare, four-star support level of 71.25-71.63****. Futures settled a touch below this level, but held the 71.00 level. Still, the momentum looks tiled to the downside.

We noted last week and earlier this week that our bias is listed as neutral, but our tilt was slightly bearish. As markets approach the lower end of the 70 handle, our appetite for tactical and risk-defined longs is increasing.

If prices should settle above our rare 71.25-71.63**** level through the week, the chart will start to repair itself.

This market needs a catalyst, which may come with the announcement of a scheduled Trump – Xi phone call. Both sides seem reluctant about the tariff increases and Trump has expressed the want to repair the relationship. If a phone call does get scheduled, it may be the bullish catalyst this market needs.

For intraday levels, our pivot and point of balance is set at….

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