WTI Holds Gains After Surprise Gasoline Inventory Draw

Oil prices exploded higher overnight after a dismal few days which sent WTI to one-year-lows, on speculation that OPEC+talks in Vienna may result in an emergency ministerial meeting on fresh output cuts, as well as reports of a possible coronavirus vaccine, which have lifted broader markets.

“The short-term damage to oil demand from China has already occurred,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S.

“On that basis the upside potential may still depend on action from OPEC+.”

We suspect, however, that if the official data confirms API's large crude build, things will reverse rapidly.

“Between gasoline and crude, the oil market needs a bullish catalyst to relieve demand pressure,” says Josh Graves, senior market strategist at RJ O’Brien & Associates.

“Any kind of build in inventories will worsen fears of a glut and keep a lid on prices”

API

  • Crude +4.18mm (+3mm exp)

  • Cushing +960k

  • Gasoline +1.96mm (+1.8mm exp)

  • Distillates -1.78mm (-200k exp)

DOE

  • Crude +3.355mm (+3mm exp)

  • Cushing +1.068mm

  • Gasoline -91k (+1.8mm exp)

  • Distillates -1.512mm (-200k exp)

A surprise draw in gasoline relieved some bearish oil price pressures and a smaller crude build than API reported also helped...

Source: Bloomberg

Additionally, amid the flight cancellations, jet fuel inventories are rising notably as prices fall...

Source: Bloomberg

Bloomberg Intelligence Senior Energy Analyst Vince Piazza notes that the coronavirus isn't the primary cause of a potential slowdown in global economic growth but a depressant for an already-maturing cycle that underpins our reserved outlook for oil. Persistent trade and geopolitical tensions add to the pressure.

US Crude production continues at record highs while the rig count has somewhat stabilized...

Source: Bloomberg

WTI was trading around $51.50 ahead of the DOE data and held those gains after the surprise gasoline draw and modest crude build...

Finally, Bloomberg Intelligence Energy Analyst Fernando Valle warns, demand destruction from the coronavirus is taking its toll on an already-oversupplied market. Middle distillates, particularly jet fuel, are feeling increased pressure that's neutralizing benefits from IMO 2020. China is well-supplied with crude, and there should be little disruption to short-term availability, at least compared with demand. That should drive further economic run cuts in 1Q. Gasoline has fared slightly better, but the upcoming switch from winter-grade components is likely to add pressure to already-weak crack spreads.