WTI Slides After Across-The-Board Inventory Builds, Crude Production Hike

Oil prices extended gains overnight after API reported a surprise crude draw which was supported by growing confidence in demand from China’s reopening (as Aramco increased its selling prices for shipments to Asia).

“In the grand scheme, essentially you have contrasting forces of rising inventories and a bullish outlook on demand,” said Daniel Ghali, a commodity strategist at TD Securities.

Additionally, Iran’s liaison to OPEC said on the sidelines of the India Energy Week conference in Bengaluru this morning that oil prices may rise to $100 a barrel in the second half of the year as China’s economy emerges from anti-virus lockdowns

“We have some constraints in the market that could put pressure on prices,” Afshin Javan said. “I think oil prices could go to $100 per barrel.”

So with all eyes on inventories, it appears (given the API prints) that the effects of the nationwide deep freeze have finally rolled out of the data.

API

• Crude -2.184mm (+2.1mm exp)

• Cushing +178k

• Gasoline +5.261mm (+1.6mm exp) – biggest build since July 2022

• Distillates +1.109mm (+100k exp)

DOE

• Crude +2.423mm (+2.1mm exp)

• Cushing +1.034mm

• Gasoline +5.008mm (+1.6mm exp)

• Distillates +2.932mm (+100k exp)

Unlike API, the official EIA data showed a bigger than expected crude inventory build (the 7th weekly build in a row) and in fact saw builds across the board (with gasoline stopcks soaring)

Source: Bloomberg

Bloomberg’s Lucia Kassia reports that we are entering the thick of the refinery turnaround season in the US. In the past decade, refineries reduced runs to an average of 87.6% of utilization countrywide on a seasonal basis. Two of the biggest fuelmakers, Marathon and Phillips 66, expect to run their refineries at the high-80% and mid-80%, respectively, during the first quarter due to planned maintenance. That points to overall lower utilization rates in the country.

Cushing stocks surged to the highest since July 2021…

Source: Bloomberg

This is the biggest increase in Cushing stocks to start a year ever…

Source: Bloomberg

Total US Crude stocks are at their highest since June 2021…

Source: Bloomberg

Despite a notable rollover in rig counts, US Crude production increased to its highest since April 2020…

Source: Bloomberg

WTI was hovering around $78 ahead of the official data print and slipped lower after the builds…

Finally, we note that Fed Chair Powell reassured investors that the central bank will not turn more hawkish despite strong economic reports.

“Powell stayed away from turning significantly more hawkish after the bumper jobs report last Friday. Meanwhile, demand outlook continues to improve as signalled by Saudi Aramco’s price increases, and API also suggested a draw in US crude stocks,” Saxo Bank noted.

Supply is also returning to the market, as Bloomberg reported the Ceyhan export terminal in Turkey serving the one-million barrel per day BTC pipeline reopened following Monday’s deadly earthquake in the region.