WTI Rallies After Huge Product Drawdowns, Crude Stocks Near 2-Year High
Oil prices are lower ahead of the official inventory and supply data, after spiking back above $70 (WTI) this morning, as investors wait anxiously to see whether Powell folds this afternoon.
"The weakness seen overnight is mostly due to market jitters ahead of tonight's Fed rate decision with the market pricing in an 80% change of a 25-basis point hike," Saxo Bank noted.
The near-term outlook remains clouded, however, due to to weak demand that’s driving a surplus in physical markets. Global demand headwinds are offsetting support from China’s reopening, OPEC’s quota reduction and US production struggles.
In the short-term, an unexpected crude build (confirming API's print) could send prices even lower...
API
Crude +3.262mm (-1.448mm exp)
Cushing -760k
Gasoline -1.09mm
Distillates -1.84mm
DOE
Crude +1.117mm (-1.448mm exp)
Cushing -1.063mm
Gasoline -6.399mm - biggest draw since Sept 2021
Distillates -3.313mm - biggest draw since Oct 2022
After API reported a surprise crude build, the official data confirmed the build (but a smaller one) but it was the sizable product draws that got the most attention...
Source: Bloomberg
With another massive 'adjustment factor' in the data...
Soft diesel demand figures have done little to bolster confidence in the economy in the wake of the banking crisis. Seasonal consumption remained at the lowest level since 2016, with the gap widening from the five-year average.
Total US crude stocks (ex SPR) rose to their highest since May 2021...
Source: Bloomberg
US crude production rebounded modestly last week, despite a sliding US rig count...
Source: Bloomberg
WTI was hovering at around $69.25 ahead of the official print and rallied back above $70 on the big draws...
Banking turmoil drove crude to a 15-month low last week and whipped up volatility across global markets. In response, hedge funds slashed their bullish positions in WTI to the lowest since the start of the pandemic.
CFTC data shed some light on the extent of liquidations that took place last week, removing some resistance to rallies, said Rebecca Babin, senior energy trader at CIBC Private Wealth.
Despite the leg lower, a raft of market watchers remain bullish on the outlook, in part due to China’s rebound from Covid lockdowns, with predictions for prices in the second half ranging between $80 and $140 a barrel.
