WTI Surges Back Above $55 After Surprise Crude Inventory Draw

After sliding overnight on the heels of a significant crude build reported by API, oil prices have surged since the US equity market open soaring back to pre-API levels (some have suggested the gains are driven by Kuwait, OPEC’s fourth-biggest member, considering cuts to its oil production capacity targets.)

“We are waiting to see when refineries come out of maintenance. As they come out, it should start to increase demand for crude,” says Gene McGillian, manager of market research at Tradition Energy

But, while refinery maintenance is starting to wind down, lots of capacity was still offline during the reporting period.

API

• Crude +4.45mm (+2.2mm exp)

• Cushing +1.988mm

• Gasoline -702k (-2.3mm exp)

• Distillates -3.491mm (-2.8mm exp)

DOE

• Crude -1.70mm (+2.2mm exp)

• Cushing +1.506mm

• Gasoline -3.107mm (-2.3mm exp)

• Distillates -2.715mm (-2.8mm exp)

Analysts continued to expect crude inventories to rise even after last week’s massive build, but unlike API, DOE reported a surprise 1.7mm draw – ending the 5-week streak of builds. Additionally, major draws in products were bigger than expected…

Source: Bloomberg

US crude production has been flat to marginally higher for weeks as rig counts have collapsed…

Source: Bloomberg

WTI was hovering near $54.50 ahead of the DOE data, marginally higher than the pre-API levels, then burst higher, topping $55 after the surprise DOE-reported draw…

Finally, we note that Gazprom Neft PJSC Head of Strategy and Innovation Sergey Vakulenko said in an interview on Wednesday that the OPEC+ oil-production cuts deal could be improved by taking into account forecasts for global crude-demand growth and U.S. shale.

“We think that the mechanism of the alliance might become more sophisticated. Currently we’re looking just at stocks and averages,” Vakulenko said.

“We could look at other signals like production levels and forecasts for demand growth.”

OPEC and its allies are due to meet in December to discuss whether steeper cuts to oil supply will be needed after the current agreement expires in March 2020.

But, as Bloomberg Intelligence Senior Energy Analyst Vince Piazza notes, “a weakening demand outlook remains the primary driver of sentiment for crude. The lack of volatility in oil benchmarks as they retreat from the Saudi-attack spike screams to us of complacency about near-term supply shocks, evidence that flagging crude fundamentals remain uppermost in investors’ minds.”