The GERM Report

-Oil inventories decline, but are still elevated in relative terms

-En lifts force majeure in Nigeria.

Crude oil prices posted only modest gains in the Wednesday session, even with reports of a draw on U.S. commercial crude oil inventories. Investors may be placing bets on the future given the optimism surrounding vaccine developments and a prospect of another round of stimulus in the United States. The U.S. Federal Reserve fed the optimism somewhat by promising to keep cash flowing into the financial markets in an effort to arrest the recessionary strains. On the supply side, however, expect more barrels of Nigerian crude oil on the market after Italian energy company Eni lifted a force majeure declaration.

The price of crude oil wavered between small gains and losses for much of the day, moving little on stimulus or other news in a show of the tug-of-war at stake. As of 2:50 p.m. ET, the price for Brent crude oil was up 0.61% to $51.07.

The U.S. Energy Information Administration reported commercial crude oil inventories decreased by 3.1 million barrels during the week ending Dec. 11. Inventories are still a staggering 53.3 million higher than they were at this time last year. Motor gasoline and distillate levels, meanwhile, saw modest declines on the week. Total products supplied, a proxy for demand, is down 8.4% on a four-week average from last year. The level of gasoline supplied was 13.3% lower than last year and diesel supplied was down 2.8%. For jet fuel, the proxy for demand indicator is 36.2% lower than it was at this point last year.

The U.S. Federal Reserve said Wednesday it would continue buying up assets in a way that would keep the market running and support the flow of credit to American households and business. Keeping its “full range of tools” at its disposal, the Fed said it was working to counter the economic hardships brought on by the COVID-19 pandemic.

“Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year,” its meeting minutes read. “Weaker demand and earlier declines in oil prices have been holding down consumer price inflation.”

U.S. Federal Reserve Chair Jerome Powell later added there was a strong case for another stimulus package from Capitol Hill. But with the lame-duck session winding down, we wonder how long it would take to go from bill to table if something were to pass this week. Meanwhile, supportive measures from the first batch of stimulus have long run out, suggesting a holiday sales boost may be lackluster. Already, U.S. retail sales are on decline for December. Given the continued spread of COVID-19, we would suspect that gasoline demand will be weak for the remainder of the year, perhaps throttling any major gains for crude oil.

Elsewhere, we would be remiss to overlook the pending glut. Parties to OPEC+ curtailments have already agreed to increase production in incremental fashion next year. Under a President Biden, we would expect sanctions to relax on Venezuela and Iran. Libya too is expected to hold above 1 million barrels per day production, an increase from almost nothing in relative terms. Nigeria, meanwhile, remains a wild card. Following recent pipeline explosions, Italian energy company Eni lifted a force majeure declaration, allowing for more Nigerian barrels on the market.