The volatility in 2016 continues. The rally Monday from the conflict between Saudi Arabia and Iran did not last long, the market reversed and continues to seem bearish in the new year. Yesterday, WTI crude closed down $0.79/bbl to $35.97, HO closed down $0.0011/gal to $1.1253, and RBOB finished down $0.0340/gal to $1.2567. Currently, HO is down about $0.04/gal and RBOB is down over $0.07/gal. Brent crude fell below $35/bbl for the first time since 2004.
Normally, conflicts in the Middle East are perceived to be a bullish sign; however, the current issues between Saudi Arabia and Iran seem to be interpreted as reducing any chance of the OPEC members coming to an agreement on production cuts. The large decrease in prices today is also a result of the stronger dollar and the bearish APIs reported last night and DOEs that followed today. The API report showed a draw in crude of 5.6 million barrels, but there was a 1.4 million barrel build in Cushing, OK. The APIs showed a large build for both refined products: 7.1 million barrels in gasoline and 5.6 million barrels in distillates.
The DOE statistics report released at 10:30 AM showed shockingly large builds in refined products. The DOE report for crude mirrored the APIs with a draw of 5 million barrels, and a 1 million barrel build in Cushing. There was a build in gasoline of 10.5 million barrels, and a build in distillates of 6.3 million barrels. Since this release, HO is down around $0.05/gal and RBOB is down almost $0.10/gal. The week between Christmas and New Year’s usually have the largest builds of the year, as well as low demand, and this year was no different and much more extreme. With the colder weather finally arriving, distillates will be quicker to recover than gasoline.
One last piece of news: North Korea seems to have tested a hydrogen bomb this morning. An emergency meeting of the United Nations Security Council has been called to discuss North Korea. There are many experts that are skeptical at this writing.