EIA crude oil inventories fell more than expected, refined oil inventories fell sharply, and U.S. oil soared $1.20 in the short term

On Wednesday (December 29) during the New York session, at 23:30 Beijing time, data released by the U.
S.
EIA showed that the United States commercial crude oil inventories excluding strategic reserves fell more than expected, refined oil inventories fell more than expected, and gasoline inventories fell more than expected
.
After the EIA data, the price of U.
S
.
crude oil soared by $1.
20 in the short term.

EIA crude oil inventories fell more than expected

Specific data showed that the EIA crude oil inventory changes in the United States for the week ended December 24 actually decreased by 3.
576 million barrels, compared with an expected decrease of 2.
7 million barrels and a decrease of 4.
715 million barrels
in the previous month.

In addition, EIA gasoline inventories in the United States actually decreased by 1.
459 million barrels in the week ended December 24, compared with an expected increase of 900,000 barrels and an increase of 5.
533 million barrels in the previous month; EIA refined oil inventories in the United States actually decreased by 1.
726 million barrels in the week ended December 24, compared with an expected decrease of 350,000 barrels and an increase of 396,000 barrels
in the previous month.

The EIA report showed that domestic crude oil production in the United States rose by 200,000 barrels per day to 11.
8 million barrels per day
last week.
U.
S.
crude exports rose by 50,000 b/d to 2.
929 million b/d
last week.
The four-week average supply of U.
S.
crude products was 21.
425 million b/d, up 12.
4%
from a year earlier.
U.
S.
Strategic Petroleum Reserve inventories fell by 1.
4 million barrels last week to 595 million barrels, down 0.
2%.

The EIA report showed that the US Strategic Petroleum Reserve SPR inventory fell last week to its lowest level
since November 2002.
U.
S.
Midwest distillate inventories fell last week to their lowest level
since December 2020.
U.
S.
crude oil production rose last week to its highest level
since May 2020.

U.
S.
commercial crude inventories, excluding strategic reserves, in the week ended Dec.
24 were the lowest
since the week of Sept.
24, 2021, according to the EIA report.
U.
S.
commercial crude oil imports excluding strategic reserves in the week ending Dec.
24 were the highest
since the week of Oct.
1, 2021.

Commercial crude excluding strategic reserves imported 6.
759 million b/d last week, up 565,000 b/d
from the previous week, according to the EIA report.
Commercial crude inventories, excluding strategic reserves, fell by 3.
576 million barrels to 420 million barrels, down 0.
8%.

The Iranian nuclear talks have resumed, but the progress of the negotiations has been slow

On December 27, the Joint Commission on the Comprehensive Agreement on the Iranian Nuclear Issue held its eighth round of negotiations in Vienna to continue discussions on how the United States and Iran should resume compliance
.
So far, the talks appear to have made little
progress in boosting Iranian oil exports.

During a new round of negotiations on the resumption of the JCPOA, Iran said the resumption of legitimate crude oil exports was key
.
So far, however, the talks appear to have made little
progress in boosting Iran's oil exports.

Iranian Foreign Minister Abdollahian said that the most important issue for Iran is that Iranian oil can be sold "without restrictions", and the sale funds are deposited in Iranian bank accounts in foreign currency: the most important issue for us is to give Iran easy and unhindered oil
sales in the first place.
The proceeds from the oil (sales) are deposited in Iranian banks as foreign currency so that we can enjoy all the economic benefits
under the JCPOA.

It is also reported that Iranian Foreign Minister Abdollahian said on December 27 that the parties to the comprehensive agreement on the Iranian nuclear issue will focus on discussing a "new common draft", which will be modeled for the new round of negotiations
.
The "new common draft" was reached during the seventh round of consultations, which concluded in early December, and covers issues such as
the lifting of sanctions against Iraq and verification.

In July 2015, Iran reached the Iranian nuclear agreement
with the United States, the United Kingdom, France, Russia, China and Germany.
In May 2018, the US government under Trump unilaterally withdrew from the Iranian nuclear agreement, and then restarted and added a series of sanctions
against Iran.
In May 2019, Iran gradually suspended some provisions
of the JCPOA.

When the current US administration under Biden intends to return to the Iranian nuclear agreement, Iranian officials claim that sanctions must be lifted first and future US administrations must be guaranteed
.
At the same time, the lifting of crude oil export sanctions has always been one of Iran's
top demands.
Western negotiators hope Iran will reduce its nuclear activities
before sanctions are lifted, according to Reuters.

Since April this year, seven rounds of nuclear negotiations have been held in Vienna, but no consensus has been reached
.
Meanwhile, according to Reuters, little progress was made by the two sides in the seventh round of talks, which concluded earlier this month, which led the international community to be pessimistic
about the prospects for the lifting of US sanctions on Iranian oil exports.

The negotiations will continue to be chaired by Deputy Secretary-General of the European External Action Service (EUPA) Mora
.
On the evening of 27 December, Mora re-emphasized the urgency of the talks: there was a sense of urgency among all delegations that negotiations must be concluded within a relatively reasonable period of time
.
Again, I won't set limits, but we hope to be able to do it
in weeks, not months.

In this regard, Rob Malley, the US special envoy for Iran, also warned on December 21 that there is not much time left for negotiations, and if negotiations are not reached quickly, Iran will be close to having the ability to develop nuclear weapons, and the Iranian nuclear crisis may further escalate
.
Perhaps in the near future we will have to conclude that the JCPOA no longer exists, we will have to negotiate a completely new agreement, and of course we will go through a period of escalating crisis
.

The global epidemic situation is still grim, which is not conducive to oil prices

Governments have warned that infections and hospitalizations could surge after the Christmas holidays, setting a grim tone
for the pandemic in the coming year.
After Christmas, the world recorded a record number of new coronavirus cases in a single day, and the United States added 500,000 new confirmed cases
in a single day.

On Monday, the number of new coronavirus infections worldwide exceeded 1.
44 million in a single day, breaking the previous record
.
A more conservative indicator — the seven-day rolling average of infections — is also at an all-time high due to the wave of Omicron infections, with Monday's seven-day rolling average of about 841,000 cases, up 49 percent from a month ago, when Omicron was first detected
in southern Africa.

In the week ending the 26th, the average number of new confirmed cases in the United States in a single day was close to 200,000, reaching 198405, a surge of 47% from the previous week and a new high
since January this year.

The record number of cases has required government officials to reassess their containment policies
.
As a highly mutated and most contagious variant, Omicron is fast becoming the dominant strain globally as it evades immunity typically provided by vaccines and prior infections
.

Studies have shown that although Omicron infects 70 times faster than previous viruses, the disease it causes may not be as severe as it once was, especially for those who have been vaccinated and received booster
shots.

The good news is that there has been no significant increase in the number of daily deaths from Covid cases
.
Despite the emergence of Omicron, the 7-day rolling average death toll has fallen from the Delta-driven peak since mid-October to hover around
7,000.

However, the ease of transmission and the surge in the number of cases could still squeeze the global hospital system, leaving unvaccinated and those in need of medical care for other illnesses stranded
.

Governments have warned of a possible surge in infections and hospitalizations after the Christmas holidays, setting the grim tone
for the coming year.
The record number of cases is putting increasing pressure on government officials to reassess their pandemic prevention and control policies
.

The U.
S.
follows shortening recommended quarantines for people who test positive for Covid, allowing them to return to work more quickly and potentially reducing widespread lockdowns
that could lead to school closures or supply chain disruptions.
But the arrival of Omicron has significantly hampered the normalization process
in 2021.
Reluctance to reintroduce pre-vaccination lockdowns and other restrictions could allow the virus to spread more widely
.

The hawkish tone of the Fed is bad for oil prices

The Fed's FOMC is projected to be hawkish next year, as some of the Fed presidents, who are usually more dovish, will be rotated down in the annual voting rotation
.

Regional Fed presidents who voted on their round included Esther George of Kansas City, Loretta Mester of Cleveland, James Bullard of St.
Louis and the new president of the Boston Fed, who is still hiring
.
In the meantime, the Philadelphia Fed's Patrick Harker will vote
in Boston's place.

Regional Fed presidents included Charles Evans of Chicago, Raphael Bostic of Atlanta, Thomas Barkin of Richmond and Mary Daly
of San Francisco.
Bullard, Mester and George have all recently made hawkish comments
about soaring prices.

The bigger question, though, is who will fill the three vacancies
on the Fed's Board of Governors.
The White House said on December 17 that President Joe Biden plans to be selected
before the end of the year.
However, the specific date
has not been updated since.

Whoever he chooses will have to balance their views on the appropriate policy path: promoting full employment as the pandemic continues to rage, and addressing the threat
posed by the strongest inflation in decades.

Economists believe that US President Joe Biden's nomination of three vacant seats on the Fed's Board of Governors, which is expected to be announced soon, could lead the Federal Open Market Committee's (FOMC) forecast for a rate hike in 2023 to two
from the current expectation of three times.

Chief U.
S.
economist Anna Wong said Federal Reserve Chairman Jerome Powell, who was nominated for re-election by Biden, has led his colleagues to turn hawkish, bringing forward the completion of the QE reduction to March
.

Fed Governor Christopher Waller said on December 17 that this cleared the way for the Fed to raise interest rates as early as March 15-16 at its policy meeting; But he also warned that the omicron variant could challenge his predictions
.
He's just making his point, but he's clearly not the only one
worried about overheating inflation.

Some regional Fed governors who are about to take their turn to vote have sounded the inflation alarm
.
Ahead of the Fed's December meeting, both Bullard and Mester favored a faster exit of policy support
.
In response to a question about whether the possibility of a rate hike should be left open at the March meeting, Bullard said officials should be "smart.
"
George warned of excessive inflation in November and has been a hawk.

Daly, who is about to be turned, is usually outspoken and wants to be patient as policies are tightened to get as many people back to work
as possible.
But in December, she also turned hawkish, announcing that two or three
rate hikes in 2022 may be required.
In September, she wasn't sure if it would be necessary to raise interest rates
in the coming year.
Forecasts at the time showed that Fed policymakers were evenly matched on whether to raise rates for the first time in 2022 or 2023
.

Today, however, the situation has changed
dramatically.
With the consumer price index reaching its highest year-over-year increase in nearly 40 years, the median forecast presented by policymakers at the Dec.
14-15 policy meeting showed they had shifted to three rate hikes next year and three more in 2023
.

Mexico will stop crude oil exports to meet its energy independence goals

A press conference in Mexico on Tuesday once again told the outside world that the crude oil market is full of astonishing unpredictability
.
Petroleos Mexicanos CEO Octavio Romero announced in Mexico City that the country will completely stop exporting crude oil to international markets in 2023, and as a transitional period, exports will be cut by more than half to 435,000 barrels per day
in 2022.

This change also reflects the determination
of Mexican President López Obrador to be "energy independent".
Like most major oil producers, Mexico lacks enough refining equipment to convert crude oil into fuel oil and other chemicals, so the country imports most of its gasoline and diesel from U.
S.
refineries
.

If AMLO's plan can be successfully implemented, it means that important sellers in the international crude oil market will exit the market
in 2023.
In the early years of this century, Pemex exported 1.
9 million barrels per day of crude oil per day to refineries in the United States, India, Japan and other countries, and in recent years exports have remained above
1 million barrels per day.
Mexico, also an OPEC watcher, was in the global spotlight
during last year's negotiations on a historic production cut deal.

Mexico's suspension of crude oil exports has also had a huge impact on refineries in the U.
S
.
Gulf Coast, most of which are equipped to process heavy sour crude.
While the market does not quite understand the logical relationship between increasing domestic refining capacity and halting exports, for highly indebted Pemexicanos, how to replenish trade cash flow is even more urgent
.
The Mexican state-owned enterprise currently saddles up to $113 billion in debt, the most
among global crude oil exporters.

In addition to paying bonds, there are questions
about how to increase refining capacity in the next year or so that it can fully absorb its own domestically produced crude oil.
Because it is easier to deliver to the U.
S.
refinery next door, Pemex refining equipment has not reached more than half capacity in the past five years, and the problems caused by insufficient investment and lack of maintenance are difficult to solve
in the short term.

For comparison, U.
S.
refineries typically use more than 90 percent of their capacity, and even at the height of the pandemic, capacity utilization is close to 70 percent
.
Rosanety Barrios, a former official at Mexico's Ministry of Energy, said in an interview that the country's refiners would struggle to reach 80 percent of rated capacity and would not have a cushion
from foreign partners in the event of a setback in the program after publicly shouting to stop exports.

Romero also publicly said on Tuesday that in order to meet domestic energy targets, Pemex will reach 1.
51 million b/d of refining capacity in 2022 and further increase it to 2 million b/d
by 2023.
The country's refinery in the Dos Bocas region is currently under construction and is scheduled to come on stream in 2022, but it is difficult to reach full capacity
in 2023 due to cost overruns and construction delays.
In addition, Mexican state-owned enterprises have bought a facility near Houston, which is still considered part of
Mexico's national refining system, although located in the United States.

According to estimates, if Mexico increases refining capacity by 63.
5-735,000 barrels per day, it can produce 190,000-220,000 barrels more gasoline, enough to reduce US refined oil imports
by 50% compared with 2020 levels.
According to EIA, more than 60% of the gasoline exported by refiners in the US Gulf of Mexico went to Mexico
in 2020.

In addition to U.
S.
refineries, Asian refineries will also be affected by this latest development, with the region consuming a quarter of Mexico's exports and South Korea and India bearing the brunt
.

Venezuela has doubled its crude oil production this year

On December 24, Venezuela's state oil company announced that it had produced more than 1 million barrels per day of oil for the first time in three years, which the country's oil minister, Tarek El Aisami, called a "great victory"
in a Christmas speech.

In November, Venezuelan oil companies averaged 824,000 b/d of capacity, well above the level of the first three quarters of the year and up 90%
from the same period last year.
Previously, Petroleos Venezuela dealt with the old debt of the small drilling companies that served it and secured a steady supply
of a key diluent from the National Iranian Oil Company (NIOC).

Iran's regular supply of diluents to Petroleos Vazunes could help the company upgrade sludge oil pumped from the Orinoco Heavy Oil Belt to a more commercial grade and ship it to the market
.

Gains from Venezuela's domestic crude oil sales and increased oil exports to Asia have allowed Petroleos Venezuela to amortize some of its debt with service companies and settle its debt problems by promising future work and allowing some domestic companies to operate drilling
.
According to people familiar with the matter, a small number of service companies have also accepted physical settlements
such as petroleum by-products and surplus fuel.

As of mid-December, there were 47 workover and maintenance rigs in the Orinoco River area, and 29 in other areas
, according to an internal Venezuelan document.
In addition, 19 rigs are at standstill
.
Still, even after doubling crude production in 2021, the South American country is still far from its peak
of 3 million b/d in 1998.

Venezuela produced 569,000 b/d of crude last year, with exports averaging 627,000 b/d
.
With production not keeping pace with exports, Petroleos Venezuela has depleted large inventories, so there are rumors that it may have added imported diluents or water
to its exported crude.

A consulting firm based in Latin America estimates that Venezuelan oil production has rebounded, excluding condensate and natural gas liquids, and that the country's crude oil production this year will average 640,000-660,000 barrels per day
.

Antero Alvarado, managing partner of consultancy Gas Energy, said Petroleos de Venezuela had amortized its debt to suppliers
.
Alvarado added that Petroleos Venezuela's two oil projects in eastern Venezuela, Petro San Felix and Petrodelta, have resumed some production and are now seeking financing to continue increasing production
.
In addition, the company repaired three 750-horsepower rigs, which are scheduled to start up
next year.

Petroleos de Venezuela has at least two separate projects planned to nearly double production in 2022, namely Tia Juana and Cabimas
, according to people familiar with the matter.

A Venezuelan oil worker said more and more oil fields are being reopened and more oil transit stations
will be reopened in 2022.
Because of the fragility of the agreement with oil service companies to resume work, if Petroleos Venezuela does not keep its commitments, the agreement could break down, so the delay in debt repayment will be a key concern
for Petroleos Venezuela.

In addition, the figure of 1 million barrels per day does not seem reliable, as the market is focused on persistently high production levels rather than temporary production peaks
.
This is an important difference, and on a monthly basis, this production is indeed up 21%
compared to November.
But it's unclear whether the company can continue to boost or sustain oil production
.
Years of unpaid bills, mismanagement, and U.
S.
sanctions have limited its downstream customers to companies that track transactions and denied access to specialized drilling equipment and overseas investments
.

Fernando Ferreira, head of geopolitical risk at energy consultancy Rapidan Energy Advisors, said Venezuelan oil companies are unlikely to maintain 1 million barrels per day
, despite the optimistic outlook for Venezuelan production growth.
The country's oil industry is still riddled with holes, so higher shipping volumes could increase the chances
of accidents and breakdowns.

In addition, Venezuelan oil companies are already close to their peaks, and if they want to further increase their earnings, they may be limited
by a lack of equipment such as drilling rigs.

Francisco Monaldi, director of the Latin American Energy Program at the Baker Institute at Rice University in Houston, said: "The base production in 2021 is much lower than that of Venezuelan Petroleo, and we have now reached this capacity
.
To achieve production growth in 2022, investments in new well development and upgrading infrastructure
will be required.