WTI Slides After Official Data Confirms Big Crude Build

Oil prices rebounded (after a phone call between Saudi Arabia’s Crown Prince and Russia on Wednesday was described by The Kremline as positive) from their ugly reaction to a surprising (and large) crude inventory build reported by API but remained lower ahead of the DOE data on the heels of investor anxiety over Russia’s willingness to extend production cuts.

“Crude oil looks like it has reached a consolidation stage,” said Ole Hansen, head of commodities strategy at Saxo Bank.

“The global economic outlook and risk of new pockets of Covid-19 outbreaks will dictate the speed of demand recovery.”

Things could escalate quickly if API’s surge in stocks is echoed by the EIA. Crude inventories have recently posted declines, something that was considered a sign of demand recovery in the oil market and extrapolated to match a rebound in the economy. Today’s EIA data is crucial in determining whether that rising crude demand continues or if it was just a fluke.

API

• Crude +8.731mm (-2.32mm exp)

• Cushing -3.37mm

• Gasoline +1.12mm (-675k exp)

• Distillates +6.907mm (+2.55mm exp)

DOE

• Crude +7.928mm (-2.32mm exp)

• Cushing -3.395mm

• Gasoline -724k (-675k exp)

• Distillates +5.495mm (+2.55mm exp)

Official DOE data confirmed API’s surprise surge in crude stocks with a 7.93mm build (and distillates saw their 8th weekly build in a row)…

Source: Bloomberg

As rig counts collapse near series lows, US crude production continues to plunge…

Source: Bloomberg

As Bloomberg’s Vincent Piazza notes, fears about oil storage filling up are abating with wells shut in 2Q, while optimism for a recovery in demand increases as the U.S. begins to reopen regions affected by Covid-19. Still, we anticipate uncertainty as wells coming back on-line would boost imbalances with WTI rising above $30 a barrel. 

Oil is up about 70% this month, the most since at least the early 1980s, and July WTI is hovering around $32.75 ahead of the official inventory data…

Notably, warning signals remain. Demand for gasoline fell 25% to 35% from a year earlier over the U.S. Memorial Day weekend, which usually heralds the start of the summer driving season and the peak of fuel consumption.

BREAKING: GasBuddy gasoline demand data shows Monday gasoline demand -0.5% from the Monday prior. Thur-Mon demand is now -1.34% from same period a week ago. #gasoline #oil #OOTT pic.twitter.com/P2z9LoYRRy

— Patrick De Haan ⛽️📊 (@GasBuddyGuy) May 26, 2020

WTI (July 2020) was hovering between $32.50 and $33 ahead of the print and extended losses down to a $31 handle…

Separately, as Bloomberg reports, the U.S. is considering a range of sanctions to punish China for its crackdown on Hong Kong, including controls on transactions and freezing assets of Chinese officials and businesses. Additionally, the U.S. certified Wednesday that Hong Kong is no longer politically autonomous from China. The deteriorating relationship between the world’s two largest economies could complicate the market’s comeback from a historic demand crash.