WTI Slides After Surprise Crude Build, New Record Production

Oil prices extended gains overnight after API reported a surprise crude draw and OPEC’s top official talked about the potential for a “sharp” slowdown in American shale output next year.

“Today, the market will focus on the release of official U.S. oil statistics by the Energy Information Administration,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London.

“As usual, the mood ahead of the EIA release is being set by the preliminary numbers released by the API the day before.”

Of course, all that enthusiasm could evaporate if inventories are seen surging...

API

  • Crude -0.5mm (+1.5mm exp)

  • Cushing -1.2mm

  • Gasoline +2.3mm

  • Distillates +0.8mm

DOE

  • Crude +2.22mm (+1.5mm exp)

  • Cushing -1.229mm

  • Gasoline +1.861mm

  • Distillates -2.477mm

Completely reversing last night's API-reported draw, official data shows a bigger than expected 2,.22mm crude inventory build

Source: Bloomberg

While OPEC hopes for a decline, US crude production surged to a new record high despite the collapse in rig counts

Source: Bloomberg

Crude imports fell hard last week to the lowest levels in over two decades. Thanks mostly due to declines in oil flows from Canada because of the Keystone outage.

WTI was hovering around $57.60 ahead of the print and dropped on the surprise build...

Finally, we note Bloomberg Intelligence Senior Energy Analyst Vince Piazza warns that OPEC is hoping for tighter balances next year from cuts to crude supply by non-cartel countries, but we think demand remains the critical unknown. If global output were the main concern, we would be seeing a higher risk premium following the recent attacks against Saudi oil fields and an Iranian tanker. Furthermore, we sense U.S. output will be more resilient than believed thanks to cost deflation and efficiency gains boosting productivity.