With WTI at its highest since July 2015, vol at 8mo lows, and the front-end flipped into backwardation for the first time since Nov 2014, it appears a lot of hope is priced into continued equlilibration (and OPEC). Last night's API (crude draw) provided some more confirmation but this morning's DOE data disappointed with a smaller than expected crude draw, and production rose once again to a new record high.
“Domestic production is going to be the big nugget that everybody will be racing to see, in terms of whether those levels continue to rise or not,” John Kilduff, a partner at Again Capital, says.
“They likely will, so that can be a counter-balance to the drawdown”
- Crude -6.356mm (-2.2mm exp) - biggest draw since August
- Cushing -1.8mm
- Gasoline +869k - surprise build
- Crude -1.86mm (-2.2mm exp)
- Cushing -1.827mm
- Gasoline +44k (+1mm exp)
- Distillates +269k
DOE disappointed expectations with a considerably smaller than expected crude draw (and well below API) and modest product builds...
As a reminder, last week saw the first rise in total inventories in 8 weeks and that held this week.
US crude production rose 13k b/d to a new record high...
Price-wise, WTI went into the DoE report at its highest since July 2015 (both WTI/RBOB higher after API) thanks also to the shutdown of the Keystone pipeline which tightened the market, but both WTI and RBOB slipped after the print...
The front-end of the WTI curve is in backwardation for the first time since Nov 2014. The move briefly put all of WTI curve through 2021 into backwardation
However, BofAML analysts including Francisco Blanch said in report, that "bloated crude oil inventories in North America likely will remain the Achilles’ heel of the oil market, negatively impacting WTI."