WTI Slides After US Crude Productions Hits New Record High, Inventories Rise Across The Board

Oil prices were higher again this morning (3rd day in a row, at two week highs) as traders and shippers braced for the prospect of more disruptions in the Red Sea.

The escalated geopolitical risks have introduced a premium to an oil market plagued by skepticism that OPEC+ will adhere to production cuts and concerns that supplies from outside the cartel are increasing, especially from the US. Some of that concern has been tempered by wagers that global central banks will embark on a rate-cutting cycle next year as inflation slows.

But the inventory/production data will be the driver of the next leg one way or another.

API

Crude +939k (-2.5mm exp)

Cushing +1.853mm

Gasoline +669k (+700k exp)

Distillates +2.738mm (+700k exp)

DOE

Crude +2.9mm (-2.5mm exp)

Cushing +1.68mm

Gasoline +2.7mm (+700k exp)

Distillates +1.5mm (+700k exp)

US crude stocks jumped 2.9mm barrels last week (hugely beating the 2.5mm draw expected), Cushing stocks and product inventories also built…

Source: Bloomberg

The Biden administration added 629k barrels to the SPR last week – the most since September…

Source: Bloomberg

US Crude production jumped 200k b/d to a new record high, despite the trend lower in rig counts…

Source: Bloomberg

WTI was trading just above $75 ahead of the print and started sliding fast soon after…

But prices are still holding some geopol risk premia…

Despite the recent rally, some traders don’t anticipate long-term price impacts for crude, and timespreads – a critical barometer for supply and demand – continue to indicate weakness.

WTI’s prompt spread, the difference between its January and February contracts, settled at 50 cents in contango, signaling an abundance of barrels available in the near term.

“As the holiday season approaches, a stable outcome for the region looks elusive,” said Stephen Innes, managing partner at SPI Asset Management, in market commentary.

“The longer the war in Gaza rages on, the escalating humanitarian crisis may intensify political pressure on various actors, potentially leading to an expansion of the conflict.”

And “in the midst of rocket attacks and bombings, the fog of war increases the likelihood of unpredictable events and significant miscalculations, potentially resulting in further escalation,” said Innes.