Monday January 23, 2017
Markets ended the week on a high note, with both products finishing Friday up around 3 cents. The sentiment ending the week remained bullish as many looked toward the impending OPEC compliance meeting. However, market action seemed somewhat subdued on Friday, as the attention of many market participants was on the events in Washington D.C.
One of the largest moves Friday was seen in heating oil's forward structure. As inventories remain elevated, and weather forecasts appear to show higher than normal temperatures, more contango has developed in heating oil futures. On Friday, this was particularly pronounced in the front spread (February 17' vs March 17'). This spread reached its lowest level for these specific months and saw a fall (increase in contango) of almost 40-cents on Friday. As this value grows, it increases the incentive for more barrels to go into storage across the East Coast.
The Baker Hughes rig count data on Friday did draw some attention. Normally the weekly numbers are not as important as the overall trend in addition/subtraction of active rigs. Friday's outright number, however, was quite large. After the previous week saw a slight reduction in rigs, Friday's report was highlighted but a large build of 29 oil rigs. This is the largest weekly gain in almost four years and adds to the overall trend of an increasing U.S. rig count.
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