WTI Erases Overnight Gains On Demand Fears, Crude Inventory Build

Oil prices extended gains overnight, along with the rest of the markets, on hope The Fed's buying will work and optimism that US Congress will agree a bigly Stimulus Bill and helped by a surprise crude draw reported by API.

But early on this morning that all started to fall apart and WTI plunged back to a $23 handle after the boss of Vitol Group said demand is down about 15 million to 20 million barrels a day and will shrink further with India’s decision to go into lockdown.

“The hope for more stimulus is giving a short-term boost,” said Josh Graves, market strategist at RJ O’Brien & Associates LLC.

“From a fundamentals standpoint, we’re still looking at two cataclysmic supply and demand shocks. Those need to be addressed before we see any sustained rally.”

So once again, all eyes are on the official inventory data...as road and airline traffic has collapsed.

Bloomberg Intelligence's senior energy analyst Vince Piazza warns:

"Near-term crude builds are likely with refining runs cut back as demand downstream demand weakens. The price war and downdraft in consumption from the virus is a double hit to domestic producers, as export volume will retract on narrower differentials and cash flow will degrade. Look for floating storage levels to rise across the globe as arbitrage is once again profitable."

API

  • Crude -1.25mm (+2.5mm exp)

  • Cushing +1.066mm

  • Gasoline -2.622mm (-2.4mm exp)

  • Distillates -1.901mm (-1.6mm exp)

DOE

  • Crude +1.62mm (+2.5mm exp)

  • Cushing +858k

  • Gasoline -1.537mm (-2.4mm exp)

  • Distillates -678k (-1.6mm exp)

After last night's surprise crude draw (reported by API), official government data showed a build (though smaller than expected). This is the 9th straight week of crude builds, 8th straight week of gasoline draws, and 10th straight week of distillate draws...

Source: Bloomberg

Production hovered at around 13mm b/d - a record high.

Source: Bloomberg

WTI plunged near a $22 handle ahead of the inventory data

 

As Bloomberg points out, the specter of collapsing demand and a rapidly expanding oil surplus have made recent price recoveries short-lived. Brent crude’s six-month timespread has sunk into the deepest contango in more than a decade, signaling oversupply...

Source: Bloomberg

...and gauges of the physical market are also pointing to weakness...

“The physical market is in pain, and there is more pain to come,” said Torbjorn Tornqvist, the co-founder of Gunvor Group Ltd., a large trading house. “We will see the full weight of the oversupply in a couple of weeks.”

Examples abound from Africa to the Middle East to Latin America. Nigeria, the biggest oil producer in Africa, is selling its flagship Qua Iboe crude at a discount of $3.10 a barrel below the Dated Brent benchmark, the largest in at least two decades.

Source: Bloomberg

...with traders expecting the glut to worsen. “The physical oil market looks horrific,” said Kit Haines, an analyst at consultant Energy Aspects Ltd.

“Demand clearly is off, in some parts of the world, very dramatically,” Chevron CEO Mike Wirth told Bloomberg TV on Tuesday.

"Off" indeed.