Oil pries are tumbling back to earth today after some early week exuberance as a cavalcade of hawkish central bank action and FedSpeak
As Bloomberg reports, de-stocking is the main reason why the physical crude market isn’t reflecting the significant draws to come in the third quarter, Energy Aspects said in a note.
“Stocks are drawing, but due to rising cost of capital, refiners want to hold less inventory than before and so are not bidding for crude in earnest yet,” they said.
The market will tighten in 2H, with or without the extra OPEC cuts.
The question is - will stocks continue to rise at Cushing, and will recent product builds continue to point to demand ebbing?
DOE
Crude -3.83mm (-4.31mm exp)
Cushing -98k
Gasoline +479k
Distillates +434k
Small product builds and a tiny drop in stocks at Cushing (the first in 9 weeks) combined with a smaller than expected crude draw do not help bullish sentiment...
Source: Bloomberg
Of course, it's all bullshit since the adjustment factor remains extremely high...
Source: Bloomberg
Despite ongoing chatter about 'refilling' the SPR, the Biden admin drained crude for the 12th straight week (-1.719mm barrels). Added to the commercial draw,m that is the biggest overall drop in US inventories in 4 weeks...
Source: Bloomberg
Of course, given the help this is having on inflation, the drains will likely continue.
As rig counts continue to trend lower (and Texas jobless claims rise), US crude production dropped significantly last week (-200k b/d) from cycke highs...
Source: Bloomberg
WTI held above $70 ahead of the official print today (at $70.60 at the print) and the kneejerk reaction was a jump higher but that quickly faded and crude prices extended losses...
“$70 has been a battle ground in WTI,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth.
“I think the fundamental story does not align with day-to-day trading and the market will continue to be very choppy until macro and fundamentals align either way.”
Brent and WTI prices are finding a floor as oil demand recovers, but gains are limited as China’s growth sputters and Western countries face weakening consumption. China National Petroleum Corp.’s research arm expects the country’s oil demand to rise 3.5%, which is 4.5% below previous estimates.
