WTI/RBOB Slide After Oil Production Surge Offsets Biggest Crude Draw Since Sept

Following last night's mixed mesage from API (crude draw, gasoline build), WTI prices have gone nowhere as all eyes focus on DOE data this morning. Confirming API's trend, crude saw its biggest draw since Sept 2016 but Gasoline, Distillates, and Cushing (most since March) saw builds which upset the machines and sent prices lower. Crude production rose once again to its highest since July 2015.

 

API

  • Crude -9.2mm (-3.38mm exp) - biggest draw since Sept 2016
  • Cushing +1.7mm (+700k exp) - biggest build since March
  • Gasoline +301k (-450k exp) - second weekly build in a row
  • Distillates -2.1mm (-250k exp)

DOE

  • Crude -8.945mm (-3.38mm exp) - biggest draw since Sept 2016
  • Cushing +678k (+700k exp) - biggest build since March
  • Gasoline +22k (-450k exp)
  • Distillates +702k (-250k exp)

Last week's surprise build in gasoline (confirmed by API) and big draw in crude (also confirmed by API overnight) remains the big focus and DOE data confirmed it with the biggest crude draw since Sept 2016 but builds in products and at Cushing...

While the builds in produst were modest, they were nevertheless a surprise shift in trend from draws to builds...

Imports from Saudi Arabia jumped 47 percent to 813,000 barrels a day, but remain well under the 1-million barrel figure exceeded through much of the first two quarters of this year.

As Bloomberg's David Marino notes, the total stockpile draw of 7.32 million barrels brings inventories to the lowest since January 2016, but still more than 200 million barrels above November 2014, when the glut really started building up. A lot of work still to do, as OPEC well knows.

Some more details, courtesy of Reuters: total commercial stocks fell -8.9 million bbl to 466 million bbl in the week to Aug 11 (much faster than normal at this time of year).

Total stocks are now -25 million bbl below 2016 level but... +134 million bbl over 10-yr average.

Stocks are now down -13 million bbl since start of year compared with +40 million rise in 2016 and 10-yr avg of +25 million, as the rebalancing appears to be taking shape.

Meanwhile, refinery throughput unchanged last week's record 17.6 million b/d.

One number which the market was closely watching were gasoline stocks, which disappointed the bulls by rising fractionally by 22kb, and basically unchanged at 231 million bbl, despite an expectation of a 1mm decline.

As a result, gasoline stocks are now 2.3mm bbl below similar levels last year, but are 19 mm bbls above the 10 year average.

Finally, while domestic production increased again, so did imports, which accelerated by +364,000 b/d to 8.1 million b/d in the week to Aug 11

While rig count growth has stabilized, crude production continues to rise in the Lower 48 (though had dropped in Alaska for 3 straight weeks) but both saw a rise this week (total production up 79k) as Lower 48 production hit its highest since July 2015...

Bloomberg notes that U.S. oil production from major shale plays is set to hit another record at 6.15 million barrels a day next month, according to the EIA. It's not just the Permian that's growing, as the agency sees higher output across the board.

WTI Crude prices barely budged from last night's API print heading into the DOE data, spiked higher on the crude draw but slipped back lower on product builds and production surge...

Heading into the print, "the size of a potential draw in crude inventories is “going to be the most material” aspect of the report, Brad Hunnewell, senior equity analyst at Rockefeller & Co., says, adding that "investors also expect to see a rise in gasoline demand."

However, as Bloomberg Intelligence energy analyst Vince Piazza notes:

No change to our bearish view: long road to recovery still ahead. We still see mid $50-$60s as the threshold for acceleration of U.S output. Commentary from exploration and production company conference calls implies drilling efficiencies are aiding productivity.

 

Elevated refining utilization has helped deplete bloated inventories across the petroleum value chain during the key seasonal driving period, and exports have helped as well. However, the market is seeing the end to summer, with runs traditionally declining in early fall.