WTI Extends Gains After Big Product Draw, Smaller Crude Build

Oil prices dumped and pumped overnight but are holding gains for now ahead of the official inventory data as traders continue to weigh tightening physical supplies (Brent’s prompt spread strengthening to 95 cents in backwardation, hovering at three month highs) against pressure from higher for longer rates (weighing on the demand side).

“Crude oil continues to build a floor above $75 in WTI and $80 in Brent, but for now upside remains curbed,” said Ole Hansen, head of commodities strategy at Saxo Bank.

“Nvidia’s strong result yesterday helped boost risk sentiment and the dollar is heading for its first weekly loss this year, potentially adding some additional support to crude and other commodities.”

Additionally, the ongoing tensions in the middle east are supporting prices.

The “oil price is expected to continue to be range-bound short term despite escalating tensions in the Middle East,” said Helge Andre Martinsen, a senior oil analyst at DNB Bank ASA.

“Continued strong non-OPEC production data, from Norway and Canada this week, combined with a soft global economic outlook counter the effect of higher Middle East tensions.”

After last week’s huge surprise crude build (and product draws) this week was expected to see more of the same, and API reported a sizable build…

API

Crude +7.17mm (+3.2mm exp)

Cushing +668k

Gasoline +415k (-2.1mm exp)

Distillates -2.91mm (-1.4mm exp)

DOE

Crude +3.5mm (+3.2mm exp)

Cushing +741k

Gasoline -293k (-2.1mm exp)

Distillates -4.01mm (-1.4mm exp) – biggest draw since May 2023

The official data reported a smaller crude build than API reported but we also saw the biggest distillates draw since May 2023, (and small gasoline draw)

Source: Bloomberg

The Biden admin added to the SPR for the 10th straight week (+748k barrels)…

Source: Bloomberg

US crude production remains at a record high 13.3mm b/d…

Source: Bloomberg

WTI was hovering right around $78.20 ahead of the print and extended gains after the build…

Oil has remained in a roughly $10 trading range this year as the push and pull of bearish and bullish factors mute volatility.

Attacks on ships in the Red Sea and the Israel-Hamas war have ramped up tensions in the Middle East and added a geopolitical risk premium to prices.

Still, concerns about the outlook for China’s economy and its impact on consumption, as well as the pace of non-OPEC supply growth, are limiting gains.