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Crude Oil Moves Higher as Cold Weather Increases Demand

David Becker
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Despite the recent pullback in Chinese growth expectations, crude oil prices moved higher this week, and are poised to test upside resistance. Crude imports into the United States continue to decline as production ramps up to the highest levels in the past 14-years. Hedge fund traders lined up on the short side according to the latest industry report.

For the second time since January 2000, weekly imports of crude oil into the United States fell below 7.0 million barrels per day during the week ending January 10, 2014. The reduction in crude imports reflected lower purchases by refiners ahead of maintenance season, as well as the continuing rise in domestic production that is displacing imported crude oil.

The recent drop in imports fits into that trend, with weekly data indicating the decline picked up steam in the final months of 2013 and continued into January 2014. Data from EIA’s Weekly Petroleum Status Report indicate domestic crude oil production averaged more than 8.1 million barrels per day for the four weeks ending January 17, which, if confirmed in the monthly data, would represent growth of more than 370,000 barrels per day since October.

Crude oil inventories paused during the past week, snapping 3-consecutive weeks of robust declines. According to the Energy Information Administration, U.S. commercial crude oil inventories increased by 1.0 million barrels during the prior week. Gasoline inventories increased by 2.1 million barrels last week, while distillate fuel inventories decreased by 3.2 million barrels last week.

Demand for heating fuels continued to be the strength driving the petroleum complex. Distillate fuel demand averaged about 3.5 million barrels per day over the last four weeks, up by 5.2% from the same period last year. Jet fuel demand is up 7.4% compared to the same four-week period last year.

Hedge fund traders sold long position according to the latest commitment of traders report. According to the CFTC managed money reduced long position in crude oil futures and options by 7K contracts while increasing short positions by 10K contracts.

The March WTI futures contract moved higher and is poised to test resistance near a downward sloping trend line near $100. Support is seen near the 10-day moving average near $94.70. Momentum is strong with the MACD (moving average convergence divergence) generating a buy signal, as the RSI prints near 57 which is in the middle of the neutral range.

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