WTI Bounces Off $55 After Small Crude Draw

Oil prices have extended their losses after last night’s surprise crude build reported by API, not helped by the increasing concerns over demand reductions due to the spread of the Wuhan Coronavirus across the world’s biggest oil importer.

“Sentiment has turned negative,” as the coronavirus is set to affect demand, said Andrew Lebow, senior partner at New York consultant Commodity Research Group.

The virus fears have overshadowed concern over the halt of exports from Libya.

API

• Crude +1.57mm (-1.0mm exp)

• Cushing -429k

• Gasoline +4.5mm (+3.3mm exp)

• Distillates +3.5mm (+1.6mm exp)

DOE

• Crude -405k (-1.0mm exp)

• Cushing -961k

• Gasoline +1.745mm (+3.3mm exp)

• Distillates -1.185mm (+1.6mm exp)

Ongoing major builds in products continued with the 11th weekly gasoline inventory rise but crude and distillates surprised with small draws…

Source: Bloomberg

US Crude production held at a new record high in the last week and we note that the rig count has somewhat stabilized from its almost constant down-trend.

Source: Bloomberg

Oil is bearing the brunt of the anxiety due to the potential hit to travel, especially as it’s happening just before the Lunar New Year holidays, the biggest human migration in the world. Goldman Sachs predicts the virus may crimp global demand by 260,000 barrels a day this year – with jet fuel accounting for around two-thirds of the loss – if the SARS epidemic in 2003 is any guide.

WTI traded at a $54 handle ahead of the DOE print – its weakest since November…

The question is – will it bounce or break?

WTI traded above $56.50 ahead of last night’s API print and hovered at $55 before the official data this morning. The small crude draw sparked a brief positive response…

Bloomberg Intelligence Senior Energy Analyst Vince Piazza concludes: “Waning global demand for oil is the key issue for the energy market, and we don’t think a rise in prices will encourage U.S. producers to increase output. Investors seem far more interested in capital discipline than missed opportunities, as evidenced by the focus on lost demand arising for a virus in China rather than geographical tensions and an interruption in Libyan supply.”