WTI Extends Gains After Biggest Crude Draw Since 2019

Oil prices rebounded this morning with WTI rallying off $41 as traders shrugged off a surprising gasoline build (demand questions) and focused on API's reporting a large crude draw. A continually weakening dollar is also helping oil prices at the margin.

“API proved supportive for oil prices after showing a surprise fall in crude stockpiles,” said Kevin Solomon, an analyst at brokerage StoneX.

“It might be theoretically possible that the weaker dollar would ignite a rapid increase in crude demand,” but renewed virus outbreaks call this into question, he said.

So all eyes now on the official inventory data to confirm API's surprise.

API

  • Crude -6.829mm (-1.2mm exp)

  • Cushing +1.144mm

  • Gasoline +1.083mm (-2mm exp)

  • Distillates +187k (unch exp)

DOE

  • Crude -10.611mm (-1.2mm exp) - biggest draw since Dec 2019

  • Cushing +1.309mm - 4th weekly build in a row

  • Gasoline +654k (-2mm exp)

  • Distillates +503k (unch exp)

Expectations for a modest crude draw were blown away by API and the official data was even more impressive with a massive 10.6mm barrel drawdown...

Source: Bloomberg

Total US crude stocks are falling modestly but remain stuck near record highs...

Source: Bloomberg

US Crude production has stabilized in recent weeks...

Source: Bloomberg

WTI traded around $41.30 ahead of the DOE print and lifted on the big surprise draw...

However, the futures curve is showing signs of weakness...

The widening discounts, known as contango, is typical of a supply glut.

“No matter how you cut it, contango encourages storage,” Bob Yawger, director of the futures division at Mizuho Securities USA, said in a note. “Until that math is eliminated from the energy patch, prices will struggle to rally to the next level. Prices are more likely to break down.”

And finally, as Bloomberg reports, the world’s largest independent oil storage company, Royal Vopak NV, said its tanks are filling and almost all space is booked up.