Fundamentals remained significantly bearish yesterday with a 12th consecutive weekly build in domestic inventories. However, the U.S. dollar hit a seven year low on speculation that the Federal Reserve might not raise interest rates this year, and with increasing talk of an emergency meeting between OPEC and Russia to support oil prices, the market held a strong rally yesterday. Six producing countries, including OPEC members Iran and Iraq and non-members Russia and Oman, supported a producer meeting; however, no such meeting is planned as of yet and there is still a long way to go toward coordinated production. Right now the market is holding, based on only rumors, as we have heard talk about production cuts fail to materialize many times before.
Yesterday, March WTI crude gained 20 cents to $32.48, HO finished up $0.0677/gal to $1.0786, and RBOB finished up $0.0129/gal to $1.0137. This morning, the rally is holding strong with HO trading up about $0.0319 and RBOB is up about $0.0550/gal in light of this sentiment.
In more bearish news, America now has the highest level of supply for this time of the year in the past 80 years, and with 503 million barrels reportedly stockpiled, we are running tight on space to store it all. Even accounting for domestic production cuts, according to Goldman Sachs analysts, key storage locations are now “bumping up against storage and logistical constraints.” There is a fear that Cushing, Oklahoma might hit storage capacity as the key trading hub is currently at 87% capacity. Over the past several years, Cushing has added more storage to accommodate greater supply. If stocks meet this capacity we could see domestic oil prices fall even further.
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