The GERM Report

-Brent barely moves on U.S. inventories

-The porridge is a bit too hot

Crude oil prices posted modest gains on Wednesday trading that was likely thinned by investors leaving early for the long holiday weekend. The market reaction was someone muted given the sizeable draw on U.S. commercial crude oil inventories. Inventories remain bloated, however, relative to last year. The market got a boost in general, meanwhile, by approval of another vaccine for COVID-19 in the United Kingdom, though distribution remains slow in the United States. And it looks like the market went too hot too soon as U.S. drillers get back in the game.

The price for Brent crude oil was up 0.6% as of 2:13 p.m. ET and is on pace to post only modest gains on the holiday-shortened week. For December, the global benchmark is up about 8%, starting December at $47.42 per barrel.

Data from the EIA showed commercial crude oil inventories in the United States fell by 6.1 million barrels last week. Gasoline, meanwhile, drew by 1.2 million barrels, supported by an uptick in road travel during the Christmas holiday. Distillates, which include diesel, showed a 3.1 million barrel build, suggesting that deliveries may be tapering off. Relative to last year, however, the drain on crude was smaller by about 5 million barrels. Total U.S. crude oil inventories are 11% higher than the five-year average. In terms of demand, it’s lackluster. The volume of petroleum products delivered, a proxy for demand, was down 6.4% for the week ending Dec. 25 relative to last year.

“We couldn’t even pull down storage levels with a 6.1 million inventory draw which is sad but a reality, and it took the wind out of the sails for a big rally” Bob Yawger, director of energy futures at Mizuho, told the Reuters news service.

Crude oil prices have rallied hard on the back of new vaccine rollouts, a situation evidenced Wednesday with the British approval of Astra-Zeneca’s shot against COVID-19. The rally encouraged drillers in the United States to dust off equipment and get back to work, with Baker Hughes reporting more gains in the U.S. rig count. The Federal Reserve Bank of Dallas added that sentiment in the oil and gas sector had improved. Most respondents to special questions posed by the Fed, however, said they were basing their spending plans on U.S. oil priced at around $45 per barrel, compared with $48 per barrel in the Thursday session.

Gasoline prices in the United States continue to post new highs relatively speaking as refiners cut back to stave off weak margins. If economic recovery remains elusive into the second quarter, the disparity between Wall St. and Main Street could be compounded. Too hot, and consumers already struggling to make ends meet will pull back even further. Rig activity won’t show up as production late in the first quarter at the earliest, however, and demand will eventually recovery. Short-term, however, and the market may be primed for something of a correction.