WTI Holds Gains As ‘Tank Bottoms’ Loom After Big Draw At Cushing Hub

oil prices continued their recent rally off three-year lows this morning (rebounding from weakness overnight following the unexpected crude build reported by API) ahead of today’s FOMC decision and pushed higher by re-awoken geopolitical risk premium after Israel’s pager-op on Hezbollah prompted the start of retaliations.

The weak preliminary inventory data from API and recent trends in product spreads are adding to concerns about demand in the US, said Robert Yawger, director of the energy futures division at Mizuho Securities USA.

“If you don’t need the product, you don’t need the crude oil to make the product,” Yawger said.

“That is the most important math in energy — everything else is noise.”

The big question is will the official US crude stockpile data confirm API’s.

API

• Crude +1.96MM (Exp. -0.5MM)

• Cushing -1.4MM

• Gasoline +2.34MM

• Distillates +2.3MM

DOE

• Crude -1.63MM (Exp. -0.5MM)

• Cushing -1.979MM – biggest draw since Jan

• Gasoline +69k

• Distillates +125k

The official data contradicted API with a 1.63mm barrel draw and Cushing saw stockpiles tumble 1.979mm barrels – the biggest draw since January…

Source: Bloomberg

The big draw at Cushing pushed stockpiles near ‘tank bottoms’…

Source: Bloomberg

Total crude stocks (ex-SPR) dropped to their lowest in a year as the battle between physical-demand and paper-punting continues…

Source: Bloomberg

Who could have seen that coming?

There it is: record shorting by funds/CTAs despite stable physical demand. Tank bottoms coming up https://t.co/AB1OobZVQE pic.twitter.com/BDD3fq58MH

— zerohedge (@zerohedge) September 10, 2024

The Biden admin added 655k barrels to the SPR last week…

Source: Bloomberg

US Crude production dipped to 132.mm barrels…

Source: Bloomberg

WTI had bounced back above $71 ahead of the official data.

Crude remains markedly lower year-to-date, reflecting China’s dour demand outlook and plans by OPEC+ to eventually restore some shuttered output. The headwinds have been partially countered by supply disruptions in Libya and the US and prospects for monetary easing, with investors expecting the Federal Reserve to start lowering interest rates.

In the Middle East, Iran-backed Hezbollah accused Israel of orchestrating an attack in Lebanon involving the explosion of pagers, which left a number of people dead and wounded thousands. The incident raised fears of an all-out war in the region, and buoyed prices on Tuesday.

Yet on the demand side, lackluster consumption has seen some refineries in Europe reduce processing rates. Meanwhile in China, the world’s largest oil-importing nation, poor margins have led to the bankruptcy of two small plants.