WTI Holds Overnight Gains After Record Crude Production, Big Product Draws

Oil prices extending gains from API’s reported big product draws overnight and hopes of progress in US-China talks

Market will also be looking out for impact of higher global freight rates on U.S. crude exports because of U.S. sanctions on Cosco, says Bob Yawger, director of the futures division at Mizuho Securities USA.

“The tanker shortage has increased tanker rates by 100% in many cases, and hence prices out U.S. exports”

But for now, all eyes (and algos) will be on inventory data.

API

• Crude +4.13mm (+1.7mm exp)

• Cushing +1.24mm

• Gasoline -5.94mm

• Distillates -3.98mm

DOE

• Crude +2.93mm (+1.7mm exp, +1.4mm whisper)

• Cushing +941k

• Gasoline -1.213mm (-900k exp)

• Distillates -3.943mm – biggest draw since March 2019

As refinery maintenance season starts, product inventories should remain subdued and distillates saw a notable inventory draw (the biggest since March) as the crude build came in lower than API reported (4th crude build in a row)…

Source: Bloomberg

In fact, while crude inventories rose, almost all others fell.

Source: Bloomberg

US Crude production surged 200k b/d, reaching a new record high despite the continued collapse in rig counts…

Source: Bloomberg

Bloomberg Intelligence Senior Energy Analyst Vince Piazza warns:

“Waning demand for oil remains the market’s main concern, but we think the market is underpricing the risk from the situation in Saudi Arabia. The precise, sophisticated attack on installations deep in Saudi territory will probably lead to some kind of retaliation, though we are moving toward the view that direct military intervention is not as likely as some less transparent kind of action.”

WTI was hovering around $53 ahead of the DOE data (off the overnight highs) having flash-crashed briefly down to a $51 handle yesterday around Powell/Trump headlines. Algos chopped on the DOE data but are holding above $53 for now…

“It’s the trade news from China, and with that, the weaker dollar which is driving the recovery,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. “Turkish troop movements are likely to further reduce the selling appetite as it adds another geopolitical risk to an already long list.”