Singapore—0318 GMT: Crude oil futures extended their overnight gains during mid-morning trade in Asia Jan. 7, as the oil market priced in a massive decline in crude inventories reported by the Energy Information Administration, while expectations of further US fiscal stimulus and a weaker US dollar seen in the wake of the Democrats winning the Georgia Senate runoff elections lifted sentiment.
At 11:18 am Singapore time (0318 GMT), the ICE Brent March contract rose 37 cents/b (0.68%) from the Jan. 6 settle to $54.67/b, while the February NYMEX light sweet crude contract was up 37 cents/b (0.73%) at $51.06/b. Both markers had jumped 1.31% and 1.40% on Jan. 6 to settle at $54.30/b and $50.63/b, respectively.The EIA data released on Jan. 6 showed that US commercial crude inventories had declined 8.01 million barrels to 485.46 million barrels in the week ended Jan. 1. Last week's draw was the largest on record since August, and took analysts by surprise as they had expected a 4.4 million-barrel draw.
The EIA report was not all bullish as it also showed that US gasoline inventories had risen 4.52 million barrels to 241.08 million barrels in the same week, registering the largest one-week build since April 10. Distillate inventories were also up 6.39 million barrels at 158.42 million barrels.
Particularly worrisome was the figure for total product supplied, EIA's proxy for demand, which hit an 18-week low of 17.05 million b/d last week after falling 2.26 million b/d, the biggest one-week drop since late August.
Markets, however, rationalized these bearish movements in product demand and inventories as seasonal, noting that end of year holidays typically weigh on refined product consumption.
Meanwhile, after winning both seats in the Georgia Senate runoff elections, the Democrats have effectively seized control of the Senate. With the House of Representatives also under Democratic control, the Biden administration now has a greater chance of pushing through its legislative agenda, and this may allow for the passing of further stimulus measures.
The prospect of additional stimulus measures has been supportive for the oil markets as it has pushed the US dollar down, with fiscal relief itself also expected to spur an economic recovery and shore up oil demand.
"The Democrats gaining control of the Senate has given a boost to oil as the market is expecting more fiscal spending. There have been a few transmission mechanisms, one of which is general bullishness from the reflation trade trickling into into oil prices and another is the slide in the US dollar," Pan Jingyi, senior market strategist at IG told Platts Jan. 7.
While some political uncertainty arose after protestors stormed the US Capitol, interrupting the certification of President-elect Joe Biden's electoral college victory, the markets have remained largely unperturbed.
"The events at Capitol Hill have largely been shrugged off by the market as they are not at all expected to change to course of US politics," Pan said.
