WTI Holds Big Gains Despite Bigger-Than-Expected Crude Build

Oil prices rallied (despite equity weakness) to their highest since early April today with WTI tagging a $26 handle after the Energy Information Administration revised down its 2020 and 2021 crude output forecasts in its monthly Short-Term Energy Outlook.

“Production is indeed dropping and it might stay down for longer than people thought,” Bart Melek, head of commodity strategy at Toronto Dominion Bank said.

“U.S. crude oil production has not declined for two years in a row since the 17-year period of declines beginning in 1992 and running through 2008,” the agency said in its report.

“Typically, price changes affect production after about a six-month lag. However, current market conditions will likely reduce this lag as many producers have already announced plans to reduce capital spending and drilling levels.”

But the huge global glut remains and algos ‘eyes’ will be glue to API’s data tonight…

API

• Crude +7.6mm (+4.3mm exp)

• Cushing -2.216mm (-1.00mm exp)

• Gasoline -1.911mm

• Distillates +4.712mm

This is the 16th weekly crude build in a row…but Cushing saw its first draw in 10 weeks…

Source: Bloomberg

“On the demand side there’s probably a view that the worst may be behind us, in terms of the peak damage point. If we do see a second wave, that would hurt demand and hurt pricing,” said Commonwealth Bank’s Dhar.

EIA expects global liquid fuels inventories will fall by 1.9 million b/d in 2021.

“Entrepreneurs are getting inventive finding alternative storage as U.S. oil production is falling sharply,” Phil Flynn, a senior market analyst at Price Futures in Chicago, said in a note.

WTI traded just above $26 and slipped lower into the API print.

Finally, we remind readers that President Trump seems more than happy for prices (of oil) to rise…

Crude Oil prices going up as Saudi Arabia cuts production levels. Our great Energy Companies, with millions of JOBS, are starting to look very good again. At the same time, gasoline prices at record lows (like a big Tax Cut). The BEST of all Worlds. “Transition To Greatness”

— Donald J. Trump (@realDonaldTrump) May 12, 2020

“The road to an oil price recovery will likely be choppy and plagued with stop-and-go rallies and selling cycles until some level of price certainty is restored,” said Roger Diwan, vice president of financial services at IHS Markit.