End-of-the-year profit-taking and position-squaring helped U.S. West Texas Intermediate and international-benchmark crude oil finish higher on Friday although the move was not enough to prevent a third straight week of losses. The markets also remain slightly above their lowest levels in more than a year. Sellers came in early last week, continuing the well-established downtrend, but the markets hit their lows for the week when the U.S. equity indexes posted a dramatic reversal to the upside.
While crude oil traders were reacting to the surprise strength in the stock market most of the week, the U.S. Energy Information Administration (EIA) reported its weekly inventories report several days later than usual due to the Christmas holiday.
According to the EIA, U.S. crude oil inventories declined by 46,000 barrels in the week to December 21, compared with analysts’ expectations for a drop of 2.9 million barrels. Gasoline stocks rose by 3 million barrels. Traders were looking for a build of 28,000 barrels.
Although the report was deemed bearish, prices rose as investors responded to firmer equity markets and trader book squaring ahead of expected light volumes on Monday and a market closure on Tuesday for the New Year’s Day holiday.
In other news, a report from oil services firm Baker Hughes showed that the number of active U.S. rigs drilling for oil rose by 2 to 885 this week. The total active U.S. rig count, which includes oil and natural gas rigs, added 3 rigs to reach 1,083.
OPEC’s production cuts start on January 1, but they’re not expected to have an impact on supply for several weeks. Meanwhile, the market is likely to continue to worry that efforts to trim the supply glut will fall short of expectations. Furthermore, investors are likely to continue to express concerns that a global economic slowdown will lead to a drop in crude oil demand.
Due to this week’s holiday shortened week, we’re likely to see the same type of price action that we saw last week with most of the market’s movements being driven by the volatility in the U.S. stock market.