Cheers Everyone!

Big picture (Macro)

The relentless push higher continues. Today we have EIA numbers out at 9:30am central time. Last night, the API came out with their version of the numbers and showed a wild unexpected build of 7.8 million barrels. I personally think we continue to draw down on our inventories. This chart tells us all we need to know.

Small picture (Today)

Today was a great day in the oil markets. My issue is, little too far a little too fast. We did get a break of structure which is very bullish but we did leave this little section highlighted that needs a little love. A break of this level and we will head under $70 temporarily.

Plan for tomorrow:

Bull case (My lean): We continue to go higher and snag the upside target on the back of EIA inventory numbers

Bear case: A loss of 73.25 support and we will scoop the lows under $70.

Price Targets (Upside): As long as 73.25 zone holds, we will see $78.

Price Targets (Downside): 73.25 breaks, back to 70.50.

Fundamentals

OPEC Update

OPEC updated its oil balance yesterday. First impressions are good. The agency maintained to its 2.5 mbpd and 2.25 mbpd 2022 and 2023 oil demand growth predictions. A closer study suggests short-term growth will decline. OPEC lowered demand forecasts for the current quarter and the first quarter of 2023 by 140,000 bpd. These downgrades signal a weakening economy. Global economic uncertainty is strong and important economies face adverse growth risks. The international economy is moving into the New Year on a dismal note, with Europe in recession and China and the US perhaps slowing.

The global economy should expect no growth in 1H23 before expanding in 2H23. According to OPEC, global oil consumption in 1H23 would average 100.82 mbpd before rising to 102.77 mbpd in 2H23. Normalizing China's gasoline consumption boosts oil demand. Beijing's move to ease COVID-19 is a great start, but it won't boost China's oil consumption until 2Q23. Meanwhile, oil usage is likely to fall.

OPEC's supply prediction for next year is 1.54 mbpd, down from 1.89 mbpd in 2022. The US contributes 75% of overall growth. Higher production costs and supply chain difficulties will continue to hinder US shale companies. OPEC expects US oil output to grow by 44,000 bpd less than last month. Russia is the greatest non-OPEC supply drag. OPEC forecasts Russian oil output would decline 850,000 bpd to 10.1 mbpd in 2023.

OPEC's November output fell by 744,000 bpd to 28.83 mbpd, a five-month low. It enforced the greatest supply cuts since the outbreak began. As usual, Gulf producers carried the load. Three members increased supply, notably Nigeria, which restored its distinction as Africa's largest oil producer since June. The 10 OPEC+ members produced 24.42 mbpd last month, below the target of 25.42 mbpd.

Despite OPEC's supply issues, global oil stockpiles are anticipated to rise. OPEC output will average 29.07 mpbd in the current quarter if November levels are maintained. OPEC forecasts its crude call in 4Q22 at 28.89 mbpd, meaning commercial oil stocks will grow by 180,000 bpd. This is better than 2Q22's 300,000-bpd imbalance and 3Q22's 920,000-bpd surplus. As 1Q23 approaches, demand for OPEC crude is expected to rise marginally. OPEC's current predictions show that if the oil market survives the first quarter of 2023, it will be well-positioned for the rest of the year.

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