NYMEX February crude settled $1.48 lower at $93.96/barrel Friday, as a large draw in stockpiles was overshadowed by a sharp drop off in product demand and rising distillate stocks.
ICE February Brent settled 89 cents lower at $106.89/b. In products, NYMEX February ULSD settled 4.73 cents lower at $2.9394/gal and February RBOB ended 4.62 cents lower at $2.6488/gal.
US Energy Information Administration data Friday for the week ended December 27 showed crude stocks fell 7 million barrels to 360.57 million barrels, but distillate stocks rose a surprising 5 million barrels to 119.1 million barrels, outpacing analyst expectations of a 600,000-barrel build.
US gasoline stocks rose 800,000 barrels to 220.7 million barrels.
At the same time, total implied demand for products fell 1.5 million b/d to 19.0 million b/d last week, EIA data showed.
"There was a paring of earlier losses [in crude futures] after the report was released but that was it. And for products, we saw demand drop off of a cliff, which is somewhat due to the holiday season," said Matt Smith, editor of the Daily Distillation.
Smith noted that with 3.8 million barrels of the crude draw centered in the Gulf Coast, the market saw the overall decline in stocks as a "one-off" for year-end tax purposes and not likely demand related.
"Now that we are moving into the New Year we will see refinery maintenance this quarter and [crude] inventories start to rebound. We have seen production increase and crude runs are at exceptionally high levels. The only way is down," Smith said of the futures market.
Gene McGillian, analyst at Tradition Energy, said fears that even as refiners drawdown in crude, they are producing more product and putting that into storage.
"The fundamentals of this market are not strengthening that is why crude continues to retreat from the $100 level," McGillian said.
"Now are are going into the New Year with crude production at a multi-decade high and we are putting product back into tanks. That doesn't suggest a healthy picture for oil demand and there are also fears that the [US] Fed has been too quick to draw down its stimulus plan," McGillian said.
In the background of the market also remains the slow restart of Libyan oil flows.
"This time around with Libya there is a distinct possibility that material flows will be returning in the coming days," Smith said.
Libya restarted oil production from the major Sharara field in the west of the country after protests at the facility were lifted, a source close to Spain's Repsol, the joint operator of the field, said Thursday.
Protests and strike action last shut in the 350,000 b/d capacity Sharara field at the end of October.
According to a Platts survey of OPEC and oil industry officials and analysts in mid-December, Libyan output was down to an average of just 250,000 b/d in November. That is off of 1.4 million b/d in May.
The news of Libyan restarts has been bearish for oil, sending ICE front-month Brent on Friday below the 200-day moving average at $107.48/b. NYMEX front-month crude also broke below support around $95/b.
From a technical perspective, Smith said, futures appear weak.
