WTI Jumps After Surprise Distillates Draw, Production Plunges

A relatively volatile overnight session saw prices fade after API’s surprise crude build, then ramp back on the back of nothing other than stocks levitating, only to fade back as OPEC predicted that fuel demand will remain “under pressure” during the second half of this year because of the ongoing economic fallout from the COVID-19 pandemic.

Anxiety over a second wave in China (and the US) is also weighing on sentiment this morning.

“China’s shuttering of Beijing’s schools is a significant setback to the country’s recovery from the Covid-19 virus, and it could be a real blow to the petroleum demand recovery outlook, which had been improving,” said John Kilduff, a partner at Again Capital LLC.

API

• Crude +3.857mm (-3.5mm exp)

• Cushing -3.289mm

• Gasoline +4.267mm (-2.2mm exp)

• Distillates +919k (+3.1mm exp)

DOE

• Crude +1.22mm (-3.5mm exp)

• Cushing -2.608mm

• Gasoline -1.666mm (-2.2mm exp)

• Distillates -1.358mm (+3.1mm exp)

Distillates saw a surprise draw last week – the first in 11 weeks – as official EIA data showed a surprise crude build (albeit smaller than API had reported)…

Source: Bloomberg

Production numbers took a hit in today’s report, as expected, following the passage of Tropical Storm Cristobal through the Gulf of Mexico last week. Production fell by 600k b/d to its lowest since March 2018…

Source: Bloomberg

As Bloomberg’s Julian Lee notes, an average of 465,000 barrels a day of the region’s crude production was shut-in during the week to June 12, according to the Bureau of Safety and Environmental Enforcement, as operators evacuated platforms and halted production. So you’ll need to factor that in before assessing any underlying change in production.

WTI was hovering around $37.50 ahead of the official DOE data and rallied back above $38 on the production drop, product draws…

Finally, Bloomberg Intelligence Energy Analyst Fernando Valle warns: “The easing of lockdowns should spur U.S. demand and potentially drive draws on inventories for gasoline. But consumption remains well below seasonal norms and faces further headwinds as states that opened early see a rise in hospitalizations and cities such as Houston contemplate containment measures.”