WTI/RBOB Rise After Smaller Than Expected Crude Build

Anxiety over Rexit and growing concerns that global demand might not absorb swelling US supplies sent WTI/RBOB notably lower today but prices rebounded modestly after API showed notable product draws and smaller than expected crude build.

“The EIA report yesterday about the expected increase in shale output next month certainly weighed on things,” John Kilduff, founding partner at Again Capital, said in a phone interview to Bloomberg.

API

  • Crude +1.156mm (+2.5mm exp)

  • Cushing -155k (unch exp)

  • Gasoline -1.262mm

  • Distillates -4.258mm - biggest draw since Oct 2017

12th week in a row of Cushing stock declines but what was notable was a smaller than expected crude build and sizable product draws...

 

WTI/RBOB prices lifted off the day's lows after the API data...

But, “there is a good chance you will get a new all time record in production,” Bob Yawger, director of futures division at Mizuho Securities, said in a phone interview with Bloomberg. “That is going to add barrels.”

 

 

 

 

Comments

Harry Lightning Tue, 03/13/2018 - 16:41 Permalink

Sell every bounce in oil...the shale producers are going wild selling since oil rose above $60. May be their last chance to offload product for quite some time, so they are selling the shit out of forward months at the current prices to make sure they can stay in business even if crude prices fall back down. What it all means is that this upmove that OPEC engineered since last July is going to kick them in the balls for a long time to come, because they gave the shale producers a lifeline in the futures market to keep producing for the next one to two years. The net result will be another glut of oil around the world, with prices collapsing once again to reflect the over-supply.

Harry Lightning RagaMuffin Tue, 03/13/2018 - 19:11 Permalink

I think the rise in prices from $45 per barrel in July to $60 now more than covers the increased funding costs brought on by the Fed tightening. If they are well-advised, they may not have had any increased interest expense, as the Fed's telegraphing of interest rate hikes way in advance allowed firms with heavy debt loads to swap from fixed to floating payments, and then to sell Eurodollar futures short as a way to hedge away the increased interest costs. 

The frackers were on the balls of their asses not all that long ago when oil went below $30. Now its a gift from Heaven, the chance to sell at $60 and above way out into next year. The spec longs in the futures market are the Santa Clauses to the frackers, and its all going to come crashing down on OPEC later this year as the frackers make delivery to whoever is stuck with the long positions the frackers sold into. 

Before all that happens the price of oil will go into free fall as the funds have to liquidate. They are trying to be disciplined in liquidating positions now, but as you can see if you watch the crude market each morning when New York opens, one big sell order drops the price by a dollar. The market has built a terribly bearish five wave wedge that when it breaks (which it nearly did this morning) will quickly push oil prices down to the low 50's. All you need then is for the Fed's rate hikes to start showing up in the real economy, and oil nosedives to some terrifying levels, lower than the lows of the last several years. 

Too many market players got too long on the OPEC cutback of supply, not realizing that it was the second wind of the crucified in fracking country. And once oil starts dropping, we then have to wonder if it leads the other commodities lower, due to the inter-related positions of commodity arb hedge funds. Who would think that grains would drop when crude oil falls, doesn't seem to have any fundamental correlation save for a recessing economy. But if there is a price correlation between the two that some computer has identified, in today's world grains will get pummeled solely because of some hard to see price relationship. Hardly makes any sense, but that's what happens in a world where funds with huge amounts of capital get involved with markets solely because the mathematics says there's money to be made. Go figure.

Bottom line is there is tremendous downside to the oil market now, at least from how I see the market. I was thinking the pullback would be the pause that refreshes, and that crude would rally one more time up to the 70s before settling into a 50-70 range for the next few years. But what I am seeing from on the production side, along with the stubborness of the long positions to give way, all tells me that if this market breaks down its not going to be a pause but a rout. Maybe the trade of the year, or the trade of the next few years, like an annuity. Keep rolling forward short crude positions in the futures market, keep getting money for nothing. 

Time will tell, and probably in the next week or two.

In reply to by RagaMuffin

GittyUP Harry Lightning Tue, 03/13/2018 - 19:50 Permalink

Everything you are saying is absolutely correct DOMESTICALLY.  The wild card now is the US exports.  This why you are seeing such massive Cushing draws.  If the US couldn’t export crude we would be back at $40 already.  

 

That being said I believe there is going to be a shortage of shipping logistics to export crude from the gulf later this year and we could see a build up at gulf storage facilities.  Also some pipeline delay/repairs will limit crude transport to where it’s needed.   This will limit the wti price and probably put some strain on Brent as worldiwide supplies will be strained.

 

 

In reply to by Harry Lightning

Harry Lightning HillaryOdor Tue, 03/13/2018 - 19:18 Permalink

If you war game a dollar currency collapse to its ultimate end game, you will have an economic collapse before the hyper-inflation. The economic collapse part will drop commodity prices like Clay dropped Liston.

Here's how it plays out. As the dollar drops, all the foreign money that has supported the US stock and bond markets for the last twenty years all gets pulled back home. So as the dollar drops, so too does the stock market, creating a negative wealth effect among consumers and ushering in a new and powerful recession. I have never seen commodities other than precious metals rise when a stock market is dropping through the floor, which tells me that the prices of crude and grains and industrial metals will plunge with the stock market. Bonds will actually benefit as money coming out of stocks will seek a safe haven from the storm in fixed income. Finally when the government tries to save the economy with a new QE program of massive dimension, bonds will take their final curtain call and everything but precious metals will be in the toilet. 

So I would not be looking at the weakening dollar as a good thing for commodities. Actually, the weakening dollar may be the canary in the coal mine, foretelling you what's about to happen to the US and then global economy. When I look at some of the grain markets, and at how overbought their trading charts are by almost every measure, what I see is a collapse in prices coming, not a rally. The rallies had their times, the weather is about to change for the commodity markets.

In reply to by HillaryOdor

Harry Lightning Sapere aude Tue, 03/13/2018 - 19:29 Permalink

Well the chance to sell as much oil as they want for as long as they want due to this over-sized rally since last July has given the shale producers a new lease on life. Now whether the inflow of revenues they will accrue during the next year is enough to jkeep them in business is another story. But it sure as hell is going to keep supply of oil at all time highs, and that's going to be very bad for prices. 

btw, if the Iranian bloc inside OPEC decides to break from the present deal in June, and starts producing for what it thinks is $60 rather than $70 oil, crude prices will fall faster than a whore's drawers. Because already built into the equation is all the oil the frackers already have sold into the forward months. If even half of OPEC ( and it won't be half, it will be all because no OPEC member will hold back if half decide to step up production) increases production in July, by the end of the year oil will have a 20 or 30 handle due to the glut of what will be out there. 

The oil market will never learn. They always shoot themselves in the feet, nowadays mostly because the people who are driving the market - the big commodity and arb funds - never spent enough time in the fields and at the refineries and at the storage facilities to understand the fundamentals of what drives crude oil prices. How many crude traders even look at the tankers sitting in the world's oceans and seas, and then factor that supply into storage facility numbers. One of the best oil traders I ever knew made most of his money by tracking the tankers, because when oil is overproduced, the producers try to hide it in tankers so the price does not get monkey hammered. 

Its a really complex market that requires a lot of eyes in a lot of places. Which is why its such a hard market to make money in, and why there have been some monumental losses in the fund space over oil. There were some huge losses in the second half of 2017 with the unexpected rally, and now there will be even bigger catastrophes as spec long positions are something like the highest ever. When all their similar programs all start generating similar sell signals, the door will not be nearly wide enough for them to get out.

In reply to by Sapere aude

Harry Lightning FreeShitter Tue, 03/13/2018 - 19:41 Permalink

Its only the floor until the market trades through it. I would suggest that anytime you try to call a floor or ceiling in markets, more often than not the market will prove you wrong. Its like that saying that everyone has a plan till they get punched in the face. 

Frankly, if $60 was going to be the floor, we never should be trading near it. The fact that we hardly bounced after hitting $59.95 on the April contract last week makes me think that the market should be more concerned about what to do when prices trade down through $60 rather than be comfortable thinking that $60 is the floor.

Frankly, its been my experience that whenever markets think there is a floor or ceiling at a given price or yield, if that level is broken then what follows is catastrophic. Like the Maginot Line in the Second World War, or Dow 1000 back in the early 1980s. I would be more interested in knowing what you intend to do if oil breaks the low of $58.07 in January, rather than how you intend to profit from a $60 floor. Because right now, the bigger risk is to the downside. 

In reply to by FreeShitter

Pareto Harry Lightning Tue, 03/13/2018 - 20:10 Permalink

Your $USD argument is backwards.  A falling $USD against all other currencies implies commodity prices rising.  Demand for oil, grains, etc., hasn't changed.  There has been no demand/supply shock, so a strictly currency deval leads to importing price inflation as those foreign holdings of $USD are dumped, and those same dollars return home to be redeem something (anything) of value.

 

you will not see deflation unless and until rates rise - substantially.

In reply to by Harry Lightning

Harry Lightning Pareto Wed, 03/14/2018 - 00:37 Permalink

In normal times I would agree with you, because from a classic economic understanding, a falling dollar is inflationary as people foreigners need more dollars to buy the same amount of goods. 

The difference now is that a falling dollar may trigger a withdrawal of funds from a stock market that has been over-valued in part by foreign purchases. Should foreigners pull their dollars out of the stock market because the dropping dollar value is eroding any gains they expect to accrue in stock prices and dividends, the market indices would fall through the floor, there would be a negative wealth effect on the US and global economy, and commodity prices would plunge due to falling demand. 

As I wrote above, I have never seen the dollar rise during a significant stock market drop. Same holds for commodities other than precious metals. If the dollar fall moves progressively faster, then the ability to hedge dollar holdings becomes more costly. When that cost outweighs prospective gains, stocks get sold by foreign holders. I believe that we could be at that stage now, which is why I am not subscribing to the weak dollar/inflation play. 

Even if the stock market does not drop precipitously, I still am not all too certain that the dollar will keep falling. At some point, the campaign of tightening by the Fed is going to grip into money supply growth, and when it does, the dollar should stabilize if not rise. Hence another reason why I cannot be bullish on the bullish commodity due to the falling dollar argument. 

On top of everything else, take a look at the momentum indicators in charts for things like grains. They are pinning the needle in overbought territory, it would be very unlikely from an historical perspective to see much price appreciation from such overbought conditions. I have never seen corn so overbought save for when it traded over $8 a bushel, and we all know what happened after that. 

So hey, anything can happen, but to me the path of least resistance is for commodity prices to fall rather than rise from here. 

In reply to by Pareto

adr sowhat1929 Tue, 03/13/2018 - 17:18 Permalink

Because world storage numbers are more fake than Stormy Daniel's tits.

There has been no decline in global storage, it is impossible with near record production even with the supposed cuts and near flat demand.

OPEC production is still higher than the 2014 numbers that gave us the glut. 

Oil is simply being moved off the books so the majors like Virtu can make a killing off selling contracts.

In reply to by sowhat1929

Sapere aude adr Tue, 03/13/2018 - 18:07 Permalink

Opec production higher, but so is world demand! More importantly OPEC Production is more and more being used by them rather than exported.

US shale is a Ponzi scheme where none of them make money, so how can they export at $55 when its cost $80 to produce.

The land of the free market, market economy...yeh right.

In reply to by adr

Harry Lightning Sapere aude Tue, 03/13/2018 - 19:47 Permalink

There's an old saying in fixed income markets that says never fight the Fed. If there's one thing those fools are good at is killing an economic expansion, and it usually happens about 2 years and 200 basis points after they start being serious about tightening. All of which says to me that the second half of this year will be a very difficult time for the US economy. And when the US sneezes, the world catches a cold. As such, that demand for crude that seems to be so strong very likely will start to dissipate pretty strongly as we get into summer. Yet because of the rally in crude since July, the frackers have sold a bundle of forward crude contracts that ensures that supply of oil will be increasing at the worst possible time, while the demand for it is collapsing. Add to that a breakdown in the OPEC agreement as Iran seeks to sell more oil to gain more national revenue, and you have a perfect storm brewing that can turn sixty dollar oil into sixteen dollar oil. 

The worst thing that could have happened to oil markets was this over-sized rally since last July. Had OPEC been smart and realized how much the commodity funds were squeezing the price higher, they would have increased supply in October or November to get prices back toward $50 or $55, which is where they optimize market and profit share. But nope, they fumbled the ball again, and now they let the frackers set them up for a huge problem for the next two years.

Gonna be interestin'.

In reply to by Sapere aude