WTI Slides After Surprise Gasoline Build, Smaller Than Expected Crude Draw

Oil prices are extending yesterday’s gains this morning following a bigger than expected crude draw reported by API, and optimism from China as Evergrande pays a tiny coupon on a tiny yuan bond, and China injecting a metric fuckton of liquidity also.

“Oil prices are gaining today as the API inventory forecasts show draws above what the market expects, while the supply side of the equation looks tight in the U.S. and at a global level,” according to Louise Dickson, senior oil markets analyst at Rystad Energy.

API

• Crude -6.108mm (-3.8mm exp)

• Cushing -1.748mm

• Gasoline -432k

• Distillates -2.72mm

DOE

• Crude -3.481mm (-3.8mm exp)

• Cushing -1.476mm

• Gasoline +3.474mm

• Distillates -2.554mm

This is the 7th straight week of crude draws (prior to this, we saw 8 straight weeks of draws during May-June-July when the pull from refiners preparing for a surge in summer demand along with relatively stable output sent volumes lower), but we note that the official draw was less than API reported and smaller than expected. Cushing crude stocks are now sitting seasonally below the 10-year average after a long stretch of declines. Gasoline stocks surprised with a build…

Source: Bloomberg

US Crude production remains significantly impacted by Hurricane Ida shut-ins still (just this week, Shell announced that some of its offshore Gulf production would stay offline through the end of this year because of damages)…

Source: Bloomberg

Crude prices have increased this month after extreme weather disrupted U.S. supplies, and as a rally in natural gas spurred expectations consumers may switch to oil.

“[The price of] LNG is now higher than alternatives,” Mike Muller, head of Asia for trading house Vitol, said Sept. 22 on a Gulf Intelligence webinar.

“Every consultant has been getting out their notepads to see where the switching can occur– LNG to coal or liquids. LNG prices have underpinned fuel oil in a very big way.”

But, he added, many power plants in western countries no longer have the capability to burn liquid oils, so the choice will primarily be between gas and coal.

“A lot of the capacity to switch has been dismantled for environmental reasons,” Muller said.

“The number of power stations that can interchangeably come on to the grid and burn the cheapest fuel, which is fuel oil, is low. So that leaves coal.”

WTI was hovering around $71.90 – near the high of the day – ahead of the official inventory data – and slipped lower on the print…

“There are supply issues all around the market,” said John Kilduff, a partner at Again Capital LLC.

Notably, U.S. stockpiles of the so-called big 4 – crude oil, gasoline, distillate, and jet fuel – are combined, below 2018 levels now, according to data compiled by HFI Research.

Low stocks of crude and fuels are a key reason why gasoline prices are not falling after the busiest driving season ended.