WTI Holds Above $70 After Large Inventory Draws, Record US Production

Oil prices continue to tread water, with WTI holding trading a very narrow band between $70 and $71 – unaffected by API’s reported draws last night – as traders weigh uncertain demand outlook with potential supply disruptions.

Additionally, traders have “largely priced in the Middle East tensions,” and the base-case scenario for many of them is that there will be a limited attack on Iranian energy facilities, if any, from Israel, Naeem Aslam, chief investment officer at Zaye Capital Markets, told MarketWatch.

However, “the fact is that we are looking at a situation where two countries are attacking each other directly,” he added.

“[It] is a very serious situation because currently the U.S. is very much mediating the matter and tensions are incredibly high on both sides.”

“On the demand side, market participants are looking for clearer signals regarding China’s fiscal policy, as uncertainties about its economic recovery affect oil-demand expectations,” said Christopher Tahir, senior market strategist at Exness, in emailed comments.

“Both the Organization of the Petroleum Exporting Countries and the International Energy Agency have lowered their forecasts for global oil-demand growth in 2024, mainly due to expected changes in China’s consumption,” he noted.

For now, the recent hurricanes are playing havoc with any analysis of the real-time supply/demand regime based on API/DOE data.

API

• Crude -1.58mm (+1.9mm exp)

• Cushing +410k

• Gasoline -5.93mm (-2.0mm exp)

• Distillates -2.67mm (-2.2mm exp)

DOE

• Crude -2.19mm (+1.9mm exp)

• Cushing +108k

• Gasoline -2.20mm (-2.0mm exp)

• Distillates -3.53mm (-2.2mm exp) – biggest draw since March 2024

Crude stocks fell more than expected according to the official data and products saw significant drawdowns (while stockpiles at the Cushing hub inched off tank bottoms)…

Source: Bloomberg

US gasoline inventories dropped to the lowest in about two years!

That comes as weekly gasoline demand plummeted by the most this year. Demand surged ahead of Hurricane Milton’s arrival and it’s natural we see that normalizing now.

The Biden admin added 952k barrels to the SPR last week (reducing the total draw on crude stocks to just 1.24mm barrels)…

Source: Bloomberg

US crude production surged to a new record high of 13.5mm b/d last week…

Source: Bloomberg

WTI was trading around $71 ahead of the official data and remained in that range after…

Source: Bloomberg

From a price perspective, Zaye Capital Markets’ Aslam believes oil is very much back to “normal fundamentals,” with the Chinese demand equation influencing the market. “So in the absence of any serious geopolitical tension, the path of least resistance is skewed to the downside,” he said.