WTI/RBOB were sinking into the DOE data, despite API’s solid crude draw data, after tagging $62/$1.81 overnight. Official data confirmed API’s with the seventh straight week of crude builds (biggest crude build since Aug) and gasoline draws but it was distillates’ massive build (most since Dec 2016) that stood out.
A pull-back in prices might be seen if builds in gasoline and distillate inventories are larger than a crude oil decline, according to Bob Yawger, director of the futures division at Mizuho Securities USA. Yet, a second weekly drop in U.S. crude production would be “a bullish indicator.”
Bloomberg’s Intelligence Energy Analysts Fernando Valle and Vince Piazza note the potential weather effects…
Although winter usually ushers in a slowdown in demand, refiners are being encouraged to use domestic crude instead of imports tied to the Brent benchmark, whose price remains elevated because of Middle East tensions.
Cold weather in the Northern Hemisphere is having diverging effects on distillates and gasoline. It’s making distillate refining margins larger, putting downward pressure on supplies, while gasoline cracks are likely to narrow as frigid temperatures discourage domestic demand and exports.
API
- Crude -4.992mm (-5mm exp)
- Cushing -2.11mm
- Gasoline +1.87mm (+2mm exp)
- Distillates +4.272mm (+500k exp) – biggest build since Jun 2017
DOE
- Crude -7.419mm (-4.7mm exp) – biggest draw since Aug 2017
- Cushing -2.441mm
- Gasoline +4.813m(+2mm exp)
- Distillates +8.899mm (+500k exp) – biggest build since Dec 2016
This is the seventh straight week of crude draws and gasoline builds but it is distillates’ massive 8.9mm builds (the most since Dec 2016) that stands out… As Bloomberg notes, Distillate shipments were the lowest since ports were shut post-Hurricane Harvey in September. That accounts for at least 2.5 million of the distillate stock build.
Bloomberg Intelligence Energy Analyst Fernando Valle:
The massive refined product builds of 4.8 and 8.9 million barrels for gasoline and distillate, respectively, will dampen optimism for the 7.4 million barrel crude withdrawal. Implied demand fell significantly, impacted by the holiday season and a large drop in product exports.
Notably Cushing stocks have declined considerably, nearing their 5-year average for the first time since Jan 2015.
Imports to the Midwest hit a record of almost 3 million barrels a day last week. Enbridge’s pipelines are filled to the gills, and the deep discount of heavy Canadian crude has opened the arb for rail shipments.
Total crude inventory is now at its lowest since Oct 2015 (but is still around 28% above the pre-2014 normal average)…
Production fell the prior week for the first time since the hurricanes, but rebounded in the latest week by 28k b/d…
“We may soon see an end to the rally because prices at this level will only make U.S. drillers boost production,” said Will Yun, a commodities analyst at Hyundai Futures Corp.
WTI traded above $62 overnight continuing its best start to a year since 2012. This is the highest in three years as optimism on the global economy, cold weather and political unrest bolstered a market that’s finally shaking off a prolonged surplus. But while the overnight session was exciting, WTI/RBOB prices slid lower into the DOE data and the machines seemed unsure which way to run prices after the data…
“The year has started very, very well for OPEC,” Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd., said in a Bloomberg television interview.
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