WTI Extends Losses After Surprise Crude Build

Oil prices exploded overnight after the initial leg from API and then the Iranian missiles strikes, but thanks to a pair of tweets from Trump and Zarif that “all is well” and “operations are concluded,” prices reverted back to unchanged.

“Not a single drop of oil supply has been lost due to the recent incidents and that is why the oil price so quickly has fallen back down again,” said Bjarne Schieldrop, Oslo-based chief commodities analyst at SEB AB.

Last night’s API data did move the crude market, before the Iranian chaos started, so we suspect – after the overnight rollercoaster – that this morning’s official data will spark some notable reaction.

API

• Crude -5.95mm (-3.6mm exp)

• Cushing -1.0mm (-660k exp)

• Gasoline +6.70mm (+2.7mm exp)

• Distillates +6.4mm (+3.9mm exp)

DOE

• Crude +1.164mm (-3.6mm exp)

• Cushing -821k (-660k exp)

• Gasoline +9.137mm (+2.7mm exp) – biggest build since Jan 2016

• Distillates +5.33mm (+3.9mm exp)

A big draw in the prior week, and big draw reported by API, were blown away by a surprise crude inventory build and huge product builds…

Source: Bloomberg

US Crude production was unchanged on the week, remaining near record highs…

Source: Bloomberg

WTI was trading just below $62 ahead of the DOE data and dropped to the day’s lows on the surprise build…

WTI Crude prices have not only erased last night’s surge but almost entirely erased all of the post-Soleimani-death spike…

And Brent, which exploded over 5% last night, is plunging back…

Source: Bloomberg

The market’s relatively muted response is another sign that global supplies are in an era of abundance, largely powered by the American shale-oil revolution.

“We are not forecasting a shortage of supply unless we have a catastrophic escalation, which we don’t see,” United Arab Emirates Energy Minister Suhail Al Mazrouei said in Abu Dhabi.

OPEC Secretary-General Mohammad Barkindo said he was “confident that our leaders are doing everything possible to restore normalcy.”

But, “if Iran seeks further targets for retaliation to the killing of Soleimani, but without crossing declared U.S. red lines that would prompt a military response, energy infrastructure may be appealing,” said Jason Bordoff, a former Obama administration official who now works at Columbia University.

An actual supply disruption would send prices soaring, depending on the magnitude and expected duration of the outage, he said.