Oil Inventories Snap Back

The latest reading from the Department of Energy showed a surprising increase in US crude oil inventories in spite of December typically being a period of pronounced drawdowns as companies seek to take advantage of year-end tax benefits.  According to the figures, US crude oil production unexpectedly rose last week to 9.202 million barrels while the Cushing storage facility saw an additional 900,000 barrels placed in storage, bringing the total to 63 million barrels out of 85 million barrels of total storage capacity.  Hurting the outlook for crude oil prices further is the filling of global onshore facilities which currently numbers slightly less than 1.200 billion barrels in storage, not far from estimates of 1.400 billion in total global storage space.  Crude prices fell on the announcement with WTI falling as low as $36.40 before rebounding modestly.

Directional momentum has been largely absent from financial markets as the end of the year approaches.  Currencies in particular have seen both trading volumes and volatility drop dramatically as profit-taking and year-end window dressing run their course.  With traders avoiding new risk, aggressive positioning is not suggested especially with the weekly reopening expected to start with a bang and unlike the year ending with a whimper.  Equities did see some volatility in the prior session with major US benchmarks flash crashing right around the close of the cash equity session, led lower by the Nasdaq Composite erasing most of the prior session’s gains, tumbling -0.82% followed by a -0.72% loss in the S&P 500 and a -0.66% decline in the Dow Jones Industrial Average.  The US dollar remained mixed versus peers with typical correlations breaking down in the absence of trading volume.