WTI Dips After Surprise Crude Build, US Crude Production Slows

Oil prices are dramatically extending yesterday’s gains, despite a smaller than expected crude draw reported by API, as the tension between the West and Russia over Ukraine continues to add to geopolitical risk premia.

“Crude prices are soaring on expectations that an already tight oil market could see geopolitical risks exacerbate the current imbalance,” said Ed Moya, Oanda’s senior market analyst for the Americas.

“The risks are not just with the Russia-Ukraine border, but also include Iran nuclear talks and also North Korea.”

In another bullish development for oil prices, more Chinese are expected to travel for the Lunar New Year holiday this year than in the previous two years, despite the Omicron spread, in a boost to fuel consumption in the world’s largest crude oil importer, according to data cited by Bloomberg.

For now, all eyes will be on gasoline demand and crude inventories.

API

• Crude -872k (-2.1mm exp)

• Cushing -1.0mm

• Gasoline +2.4mm (+2.2mm exp)

• Distillates -2.2mm (-1.6mm exp)

DOE

• Crude +2.377mm (-2.1mm exp)

• Cushing -1.823mm

• Gasoline +1.297mm (+2.2mm exp)

• Distillates -2.798 (-1.6mm exp)

The official crude inventory data surprised the market with a 2.377mm build (vs 2.1mm draw expected and a small draw reported by API). Cushing saw its 3rd straight week of draws. Gasoline stocks grew but at less than expected while distillate inventories fell most since early December…

Source: Bloomberg

Gasoline demand remains drastically low – even assuming seasonals…

Source: Bloomberg

US Crude production slipped to its lowest since November…

Source: Bloomberg

The 4 week average volumes for U.S. crude exports are struggling to rise above the 3m b/d mark. This is despite perceptions that foreign demand is robust against a backdrop of supply shortages. But a pick up is expected in the weeks to come as Chinese refiners resume purchases for delivery after the Winter Olympics.

Bloomberg’s Danny Adkins notes that jet fuel inventories are at their lowest seasonal level in EIA data going back to 1992, despite a modest build last week. Stockpiles have held below 35 million barrels for four straight weeks, the first time they have done so since 1996.

WTI is holding just above $87 (up $2 from last night’s API report) ahead of the official data and slipped very modestly on the surprise build…

Finally, we note that it would seem President Biden’s sabre-ratlling in Eastern Europe are not helping his cause at home…

Source: Bloomberg

As soaring crude and wholesale gasoline prices (driven by geopolitical tensions) imply gas prices at the pump are set to soar.

The market is also skeptical the Biden administration can do anything to slow down oil’s move higher as OPEC+ seems set to stick to gradual production increases, Moya said.