All eyes are on the EIA numbers this morning which is expected to show another build in US fuel stockpiles. That being said, I will be looking in the opposite direction to see if there is another draw in crude oil inventories.
Crude oil futures continue to trade down 57 cents at $55.07/bbl. OPEC has yet to follow through on their production cuts since December's oil output totaled 26.945 million b/d, which represents no change from November production levels.
So, if there continues to be a draw down in crude inventories, who is doing it? In October,
OPEC agreed to reduce oil output by 1.2 million b/d from Nov.1 and another 0.5 million b/d from February 1st. So far, nothing has been done.
The fun yesterday came when Venezuela's President, Hugo Chavez announced plans to nationalize four oil projects that are currently under contract with big oil and OPEC. Like him or not, you have to admit Chavez has guts. I'll bet he really has some politicians in Washington really upset.
Last night, Chevron (CVX) came out and warned that lower commodity prices will impact their 4th quarter results. One thing to remember here is if crude continues to fall, oil companies have little or no incentives to spend money on new exploration. Like it or not, oil is a business, and pouring money into losing projects will not happen. For this reason, we expect crude prices to put in a bottom soon.
Watch Exxon (XOM) and Conoco-Phillips (COP) this morning. Both companies have announced massive stock buybacks which will serve as a stabilizing factor for the shares.
Looking at the CFTC Futures-and-Options report for crude, large speculators are still net long in crude oil futures, but have reduced the number of contracts since December 26th;
1-3-07: Long 21,554 contracts
12-26-06: Long 39,105 contracts
