WTI Holds OPEC+ ‘Hope’ Gains After Smaller Than Expected Crude Build

Oil prices have been volatile in the last few days, rallying on an OPEC+ committee recommendation that the group agree to production cuts of up to one-million barrels per day (but Russia still on the fence about deeper cuts) when the group meets later this week.

“Concerns of weak demand are still present. We’ll be looking to see if exports slowed due to the coronavirus,” says Phil Flynn, senior market analyst at Price Futures Group.

For tonight, all eyes are once again on inventories for any signs of the start of the demand collapse hitting supplies.

API

• Crude +1.69mm (+3mm exp)

• Cushing -1.352mm

• Gasoline -3.9mm (-1.87mm exp)

• Distillates -1.7mm (-2mm exp)

Expectations were for crude inventories to rise for the 6th straight week and API confirmed that but the build was smaller than expected. However, major draws in products were notable…

Source: Bloomberg

WTI was hovering around $47.30 ahead of the API data and barely budged on the inventory data…

“While lower rates would marginally reduce costs of carrying oil inventory, this factor is modest in relation to the dramatic cut in petroleum demand that is currently being seen around the world,” analysts at Ritterbusch & Associates wrote in a Tuesday note.

Further on the downside, Goldman forecast a 150k b/d decline in oil demand in 2020 – the lowest annual growth rate since the 2008/2009 financial crisis, cutting its Brent forecast for Q2 to $47 (from %57).

The Fed’s move is “a sign that the economic fall out may be worse than expected,” said Phil Flynn, senior market analyst at The Price Futures Group.

“There seems to be a lot of uncertainty, but we know that ultimately the rate cut will stabilize the market,” he told MarketWatch. “Don’t be surprised if we get a snap back later.”

At current demand forecast, Goldman says current spot prices are already pricing in a 2m b/d production cut by OPEC in 2Q… which may be a little over-optimistic.