Crude Could Continue to Fall as Inventories as Set to Rise

Oil prices remained subdued at the bottom end of the trading range but off trend lows near $55 per barrel. The Department of Energy expects that heating demand in the US will be nearly 30% less than the prior year, despite a colder than expected in November.

EIA expects that average heating oil expenditures by households that use oil as their primary heating fuel during the 2014-15 winter will be $630 below last winter’s expenditures. Heating oil prices have declined with crude oil prices, and EIA expects U.S. Heating oil prices average $3.09 per gallon this winter, 20% lower than last winter, and 15% lower than expected in the October Winter Fuels Outlook.

Gasoline inventories were the most recent culprit placing pressure on the petroleum complex. According to the Energy Information Administration, U.S. Commercial crude oil inventories decreased by 0.8 million barrels from the previous week. At 379.9 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Gasoline inventories increased by 5.3 million barrels last week, and are well above the upper limit of the average range. Distillate fuel inventories decreased by 0.2 million barrels last week and are in the lower half of the average range for this time of year.

On the demand front, during the last four weeks, gasoline demand averaged just about 9.2 million barrels per day, up by 4.1% from the same period last year. Distillate fuel demand averaged just about 3.9 million barrels per day over the last four weeks, up by 2.9% from the same period last year.

The monthly chart of crude oil shows that there is further to fall prior to reaching the 2009 lows near $35 per barrel. The monthly RSI (relative strength index) is clearly oversold printing a reading of 26, which is below the oversold trigger level of 30. Momentum is negative with the MACD (moving average convergence divergence index) printing in negative territory with a downward sloping trajectory.

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