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Energy View: Thursday January 31

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Oil futures are poised to close the month of January boasting a 19% increase, the largest monthly gain for January in 14 years and a sign of what is to come for February with indication that the embargo on Venezuela’s oil, through financial restrictions imposed by the U.S. on PDVSA, is likely to lead to oil supply challenges for Gulf Coast refiners.

Yesterday’s rally lifted WTI to levels not seen since November 21 as it gained nearly a dollar a barrel to end the trading session at $54.23, while Dated Brent managed a smaller gain to reach $61.65. Following a surprising EIA report which showed a smaller than expected 900,000 barrel build in oil stockpiles and a 2.2 million barrel draw in gasoline matched by a 1.1 million barrel distillate inventory decline, refined products picked up momentum with gasoline grabbing 5 cents and diesel up a little more than a cent. Word from the FED that future interest rates may be postponed also provided lift to the equities markets and gave assurance to commodity traders that monetary policy may remain more accommodating and therefore limit the risk of dented consumer demand.

For drivers, the rally in oil has not yet had an impact at the pumps with the cost to fill up remaining remarkably stable in January. According to GasBuddy’s Live Ticking Average, at $2.275 a gallon, the cost to motorists to fuel up is down less than a cent from last week, but up 1.6 cents compared to last month. Nevertheless, in contrast to last year at this time, pump prices are 32.4 cents lower than on this day in 2018. As for diesel which has averaged $2.925 a gallon over the last few days, prices are on par with last week, but down 7.4 cents in contrast to last month and a full 6 cents lower than the price a year ago.

With modest gains once again this morning, markets are on track to ending the month on a winning note that stands in sharp contrast to the previous month which featured a sell-off not seen since the end of 2014. The loss of 500,000 barrels of heavy crude is literally weighing on markets as signs of a tightening crude supply outlook comes into focus for February. Talks on trade between the U.S. and China could also yield bullish or bearish sentiment, depending on the outcome of the ongoing two-day discussions. A polar vortex gripping much of the U.S and Canada could increase demand for fuel and risks of freezing damage to some petroleum infrastructure as seen in the winter of 2014. Taken altogether, markets are rolling to the upside with the advent of a new month.

Senior Petroleum Analyst, Canada

Dan is a skilled and noted bilingual (French and English) consumer advocate specializing in energy and current affairs. Known as Canada's “Gas Guru,” he founded tomorrowsgaspricetoday.com to better help motorists anticipate the price of gasoline in advance across Canada. He has over three decades of experience in the petroleum industry, as a parliamentarian and an analyst.