WTI/RBOB Steady Despite Huge Gasoline Build, New Crude Production Record

Despite last night"s surprisingly large API-reported crude draw, WTI/RBOB prices were sliding in early trading but as the DOE data printed prices stabilized despite a smaller crude draw than API and a much bigger gasoline builds than expected. Production surged on the week to a new record high.

Bloomberg"s Mitch Martin noted that the Brent pipeline leak and another in Canada have U.S. refineries running hard to capture the widening crude differentials. That"s leading to oversupply in the gasoline market, which has seen inventories build for three straight weeks; a fourth is expected, increasing supply by 1.8 million barrels. Distillates also are expected to build, rising 1.1 million barrels, even as crack spreads recovered to more than $20 a barrel.

API

• Crude -7.382mm (-2.89mm exp) - biggest draw in 4 months


• Cushing -2.704mm (-2.5mm exp)


• Gasoline +2.334mm


• Distillates +1.5384mm

“We’re seeing U.S. inventories really continue to fall,” Phil Flynn, senior market analyst at Price Futures Group, says. Investors will focus on whether we see large builds in gasoline and distillates, which may hold back crude from rallying strongly, “but I don’t think you can underestimate the strong demand from the refiners.”

DOE

• Crude -5.12mm (-2.89mm exp)


• Cushing (-2.5mm exp) - biggest draw since Sept 09


• Gasoline +5.66mm (+2.3mm exp)


• Distillates -1.37mm (+1.2mm exp)

A 5th weekly build in gasoline inventories (much larger than expected), and unexpected distillates draw, as crude (and Cushing) stocks are reduced...

As Bloomberg notes, crude production topped 9.7 million barrels a day in last week"s data for the first time since weekly records began in 1983. Even more importantly, the EIA"s monthly assessment of crude production - seen as more accurate than the weekly figures - caught up with the more frequent data in September, after lagging for the previous 5 months.

The last week saw another surge to record highs...

 

WTI/RBOB prices extended yesterday"s losses ahead of the DOE data (despite API"s big crude draw) but the algos managed gains after the print even as crude drew less than API and gasoline"s build build...

WTI/RBOB Spike On OPEC Headlines After Bearish Inventory/Production Data

Update: WTI/RBOB was fading after DOE data but then Kuwait dropped the following meaningless headline: OPEC JMMC RECOMMENDS EXTENSION, DIDN"T FINALIZE DURATION. And the algos took over...

*  *  *

Last night"s API-reported surprise crude build sparked selling that not even Russia/Saudi jawboning could rescue, but DOE data showed the exact opposite with a big crude draw and even bigger gasoline draw. Added to a new record high in US crude production and RBOB is fading and WTI is not rallying.

As Bloomberg reports, the U.S. has proven at least one thing this year with its expansion of crude and products exports: we are becoming more energy independent than ever before.

Last week net imports of all crude and refined products dipped to a new record low.

That"s coupled with record-high gasoline exports, a truly spectacular sea change in our world"s oil flows.

API

• Crude +1.82mm (-2.95mm exp)


• Cushing -3.178mm - most since Sept 2009


• Gasoline -1.529mm (+1.2mm exp)


• Distillates +2.696mm (+200k exp) - biggest since July

DOE

• Crude -3.43mm (-2.95mm exp)


• Cushing -2.914mm - biggest draw since Sept 2009


• Gasoline +3.63mm (+1.2mm exp) - biggest build since July


• Distillates  (+200k exp) - biggest buils since Jan

DOE data showed the exact reverse of API with big surprise draw in crude and build in gasoline... Additionally Cushing saw the biggest destocking since Sept 2009 last week...

US crude production rose 24k b/d - to a new record high...

Gasoline exports hit a record high...

 

WTI was lower and RBOB higher heading into the DOE data but the trend reversed after on the surprise bearish product builds...

WTI/RBOB Slide After Smaller Than Expected Crude Draw, New Record High Production

With WTI at its highest since July 2015, vol at 8mo lows, and the front-end flipped into backwardation for the first time since Nov 2014, it appears a lot of hope is priced into continued equlilibration (and OPEC). Last night"s API (crude draw) provided some more confirmation but this morning"s DOE data disappointed with a smaller than expected crude draw, and production rose once again to a new record high.

“Domestic production is going to be the big nugget that everybody will be racing to see, in terms of whether those levels continue to rise or not,” John Kilduff, a partner at Again Capital, says.

 

“They likely will, so that can be a counter-balance to the drawdown”

API

• Crude -6.356mm (-2.2mm exp) - biggest draw since August


• Cushing -1.8mm


• Gasoline +869k - surprise build


• Distillates-1.67mm

DOE

• Crude -1.86mm (-2.2mm exp)


• Cushing -1.827mm


• Gasoline +44k (+1mm exp)


• Distillates +269k

DOE disappointed expectations with a considerably smaller than expected crude draw (and well below API) and modest product builds...

As a reminder, last week saw the first rise in total inventories in 8 weeks and that held this week.

US crude production rose 13k b/d to a new record high...

 

Price-wise, WTI went into the DoE report at its highest since July 2015 (both WTI/RBOB higher after API) thanks also to the shutdown of the Keystone pipeline which tightened the market, but both WTI and RBOB slipped after the print...

 

The front-end of the WTI curve is in backwardation for the first time since Nov 2014. The move briefly put all of WTI curve through 2021 into backwardation

However, BofAML analysts including Francisco Blanch said in report, that "bloated crude oil inventories in North America likely will remain the Achilles’ heel of the oil market, negatively impacting WTI."

The Geopolitical Consequences Of U.S. Oil Exports

Authored by Kent Moors via OilPrice.com,

Two crucial things happened last week.

The first you may have noticed – oil prices moved back up briefly.

As for the second, most so-called “experts” seemed to have missed.

See, the environment we’re seeing in energy markets is very different from what we saw only a week ago, when oil prices were also rising.

Because last week also saw – for the first time in world history – a reigning Saudi Arabian monarch in Moscow for talks with Russia’s head of state.

Historically, Russia has been much closer to Iran – Saudi Arabia’s main regional enemy.

Now, King Salman and President Putin are expected to endorse the plan to extend the OPEC-Russia deal to cut oil production and boost prices beyond the current end date of March 2018.

But that’s not all they’re going to talk about…

Other, more far-ranging matters will also be on the agenda, including the war in Syria.

And the catalyst for this huge shift in global geopolitics is surprisingly simple.

It’s all about America’s record-breaking oil exports…

Russia and Saudi Arabia Need Each Other… for Now

Now, there’s no indication that Russia and Saudi Arabia are on the road to an alliance on anything beyond oil prices.

Even then, that accord remains only as long as it is in the subjective interest of the parties.

Nonetheless, it is disquieting to Washington that any such prospects may be on the horizon… or that U.S. oil exports may be introducing a range of foreign policy concerns.

From an energy perspective, the main issue at hand is the OPEC-Russian deal to cap oil production, which is now almost certain to continue further than the agreed-on end date of March next year.

And after some concerns had been raised over individual OPEC members exceeding the quotas the deal assigned them, evidence is now emerging that the restraint is holding.

As I’ve several times before here in Oil & Energy Investor, there’s no genuine alternative.

The major global sources of oil need to allow the worldwide market to rebalance.

That’s the only genuine basis for stability and a slow increase in prices.

Now, with some of Libya’s oil production coming back on line, it may seem like there’s less flexibility for some producers to increase their crude output and still “hide” within the overall figures set by the cap accord.

But that’s ignoring four major factors that could cut into oil supply, and send prices higher…

Massive problems are accelerating in Venezuela, Nigerian extraction levels remain under threat from domestic instability, non-OPEC producer Mexico faces a continuing shortfall, and even the news from Libya – that a major field is coming back online – belies the ongoing civil unrest there, and lack of forward production expectations.

The international balance between supply and demand will provide a rising price.

Yet that rise will remain a gradual one.

And this balance doesn’t actually mean that there will only be exactly as much oil available as is needed at any given time.

That kind of “just in time” availability, where crude is lined only to meet immediate demand, is a certain recipe for high volatility and huge spikes in price.

Even a minor problem could create chaos in the markets.

Rather, a stable balance presupposes a continuing surplus of excess market volume.

That not only cushions the pricing dynamics from wide swings in demand, but it also allows producers the luxury of being able to predict the price range.

Anybody in the business will tell you that this predictability is far more important to maintaining profit margins than are the occasional large jumps in price.

An operator’s financial survivability requires that futures sales be calculated into the estimate of the cost of producing the oil and selling it on.

These prices, called “wellhead prices,” are the real revenue a producer receives in the first arms-length transaction as oil comes out of the ground.

These prices are also well below the market price quoted throughout a trading day.

U.S. Oil Production is at Record Highs

But the primary caveat in all of this talk about an emerging balance remains U.S. production.

It’s once again increasing and now has a more immediate impact on global pricing levels than has been the case previously.

That’s because American exports have become a major factor in the global market.

For some time, oil prices have not been determined by what occurs in developed markets of North America and Western Europe.

West Texas Intermediate (WTI) and Brent, the benchmark crude rates set in New York and London, may dictate daily trade. Yet the demand fueling the market is generated in developing areas worldwide.

Until recently, the U.S. only indirectly impacted upon the international determination of price.

In the past, the only effect came from how much the American market imported from elsewhere.

For over four decades, Congress banned the export of crude oil from the country on national security grounds.

Those restrictions resulted from the Arab oil embargo boycott of the U.S. during the 1973-74 Arab-Israeli War.

Today’s situation, where America has huge domestic extractable reserves of shale and tight oil, combined with significant improvements in production efficiency, has turned those security concerns obsolete.

There’s also the simple fact that no producing country in the world (with the possible exception of Iran, for political reasons) can afford not to sell to the U.S.

As a result, as part of a budget reconciliation two years ago, Congress lifted the ban on crude exports.

American refineries by that point were already leading the world in the export of processed oil products.

What followed was a quick move of American crude oil production back into the market…

Despite the Hurricanes, Oil Exports are Breaking Records

Exports had risen to a 1.1 million barrel a day level by the time Hurricane Harvey hit the Texas coast.

The hurricane slashed exports 60 percent. Refineries were also taken off line.

That combination should have pulverized crude oil prices, at least if you listened to the so-called “experts” on TV.

But that didn’t happen.

Instead, what happened next was nothing short of astounding.

Exports swiftly returned. Record levels were reached in each of the last two weeks.

As of last Friday, the U.S. was exporting 1.98 million barrels a day. The rising level of American volume in the broader market now has an impact on global price and the saliency of the OPEC-Russian agreement limiting production.

Because remember, U.S. production is not a party to that agreement.

The rising spread between WTI and Brent has also served as an additional inducement to increasing U.S. exports. The more international Brent prices have been increasing quicker than America’s WTI.

The difference, calculated as a percentage of WTI (the more accurate way of doing this), has now averaged more than 10 percent for the past 30 consecutive daily sessions – something that has not happened in over six years. Related: OPEC Producers Unmoved By U.S. Shale Threat In Asia

The advantage to American producers is simple. Exporting oil that costs less to produce at home into markets were the oil price is higher is a direct route to improving bottom lines.

As long as this situation remains, there will be additional U.S. production coming, because it’s profitable to extract and export.

And the more U.S. oil is exported, the less immediate effect higher production here has on domestic prices.

But this is also resulting in changes to foreign expectations.

Some of these are having spillover effects in other quarters…

Including sending Saudi Arabia and Russia into each other’s arms…

At least for now.

Maduro Visits Putin, Proposes Global Oil Trade In Rubles, Yuan

Three weeks after the US imposed financial sanctions on Venezuela in an effort to cripple its economy and choke the Maduro regime, which in turn prompted Caracas to announce it would no longer receive or send payments in dollars, and that those who wished to trade Venezuelan crude would have to do so in Chinese Yuan, today during an energy summit held in Moscow, Venezuela"s president Nicolas Maduro proposed to expand his own personal blockade of the US, by proposing that all oil producing countries discuss creating a currency basket for trading crude and refined products. One which is no longer reliant on the (petro)dollar. 

“Developing a new mechanism of controlling the oil market is necessary,” Maduro said on Wednesday at the Russian Energy Forum, being held in Moscow this week.

Quoted by RT, Maduro also blamed trade in crude oil paper futures as having an adverse impact on the oil market, which has undermined attempts by OPEC to stabilize prices. To counteract such "speculation", Maduro proposed an alternative currency basket, one which is based not on the world"s reserve currency but includes the yuan, ruble, and other currencies, and which will mitigate the alleged adverse impact of futures trading.

 

Maduro"s proposal is merely the latest not so veiled hint at dedolarizing the global financial system by bypassing the petrodollar entirely, and rearranging a new currency basket determined by the world"s biggest oil producer, and largest oil importer.

Of course, Maduro is merely piggybacking on what China may already have in the works: recall that a month ago, the Nikkei Asian Review reported that China is preparing to launch a crude oil futures contract denominated in Chinese yuan and convertible into gold, potentially creating the most important Asian oil benchmark and allowing oil exporters to bypass U.S.-dollar denominated benchmarks by trading in yuan.

Maduro also insisted that Venezuela is dealing with its debt to Russia, currently in the billions, and that Rosneft"s deal with Venezuelan state oil producer PDVSA is “subject to negotiation.” “We fulfill all the obligations to Russia. If we get more favorable terms for restructuring the debt, this will be the result of a deal between the two governments,” said Maduro. It was unclear how Putin felt toward said proposal. 

Maduro also complained that US sanctions make it difficult to negotiate the debt issue with American debt holders (something the US is well aware of). In addition to switching to a Yuan-based basket...

... Caracas has been framing a plan to deliver its crude to alternative markets should the White House impose sanctions on trading the country"s oil, Maduro said in response to a question on the possibility of PDVSA"s default. “Venezuela has plans A, B, C, and others. There are other international companies interested in buying oil and refined products. We will create the best terms for them,” he said.

It remains to be seen if a last minute agreement by Russia and China to bailout Venezuela by revoking some or all of the petrodollar"s reserve currency privileges, is in store. Needless to say, such a development would be the biggest shock to the global monetary system since Nixon killed the gold standard.

Uber Shareholder Drops Lawsuit Against Kalanick, Clearing Way For Softbank Investment

Tuesday’s meeting of the Uber Inc. board – the first following Kalanick’s unilateral decision to appoint former Xerox Corp. Chairwoman and CEO Ursula Burns and former Merrill Lynch Chairman and CEO John Thain – appears to have been a productive one.

Reuters is reporting that the board voted to move ahead with two issues, a change in governance rules, and an investment by Japan’s Softbank Group, which it was reported last month has been in talks to invest as much as $10 billion in the cash-burning ride-share giant.

To anyone who hasn’t been following the ongoing boardroom struggle between former Uber CEO Travis Kalanick, who was ousted after an investor revolt in June, and Benchmark Capital, these might seem like routine housekeeping matters.  

But in reality, they’re signs that two warring factions have agreed to put aside their differences - for now, at least - for the good of the company (not to mention their bank accounts). Benchmark has been trying to change the board"s rules to try and limit Kalanick"s power with the ultimate goal of ensuring he never returns as CEO. But today, Kalanick assented to the governance changes, albiet in a watered-down form. Meanwhile, Kalanick also gave his blessing to the Softbank deal, letting go of his reservations despite reports that Softbank had struck an agreement with Benchmark to do everything in its power to oppose Kalanick’s return as CEO as a condition of its investment, which should result in the Japanese company gaining control over at least one board seat.

Of course, by allowing both of these proposals to proceed, Kalanick is making some major concessions. What is he getting in return?

A lot, it turns out. In a separate report, Reuters said that Benchmark has agreed to drop its lawsuit alleging that Kalanick defrauded Uber’s investors. The lawsuit is related to how Kalanick managed to assert control over the two board seats to which he recently appointed Thain and Burns.

That’s a major win for Kalanick. And that"s not all. As Axios later clarified, the governance changes approved by the board will limit his power, but wouldn"t preclude the possibility of him ever returning to the helm the company.

But perhaps the most important outcome of this grand bargain is that it clears the path toward an IPO. As Axios noted, it’s the type of deal that leaves everybody feeling like a winner.

Here’s more on the governance proposal, courtesy of Axios:

What passed?

• Super-voting rights are gone, which means shareholders are all "one share, one vote." Note that only early employees actually have shares, whereas over 90% have restricted stock units (which don"t have any voting rights).


• The board will be expanded significantly, which means Kalanick would need support of a majority of independent directors to ever regain the CEO spot or be named chairman.


• If Uber doesn"t go public by two years from now, share transfer restrictions are lifted.

What didn"t pass:

• Eliminating any path to the CEO or chairman seat for Kalanick, although it"s now a much higher hurdle.

To be sure, just because Kalanick and Benchmark have put aside their differences (for now, at least) in the interest of guiding the company toward its inevitable public offering (an eventuality that holds substantial rewards for all parties involved) – doesn’t mean their plan will succeed. As we learned back in April, Uber is burning through an embarrassing amount of cash. And while an offering appears likely within the next 18 months, it could still be derailed by souring public sentiment, or the company’s disastrous finances.

In a statement addressing the meeting, Kalanick praised the board’s decisions, insisting that they were made in the best interest of the company.

travis kalanick statement pic.twitter.com/uXzLDYX0uJ

— ?_? (@MikeIsaac) October 3, 2017

And Uber"s statement, courtesy of Axios:

"Today, after welcoming its new directors Ursula Burns and John Thain, the Board voted unanimously to move forward with the proposed investment by SoftBank and with governance changes that would strengthen its independence and ensure equality among all shareholders.

SoftBank"s interest is an incredible vote of confidence in Uber"s business and long-term potential, and we look forward to finalizing the investment in the coming weeks."

* * *

One person familiar with the matter said that a group of investors led by SoftBank will be allowed to buy $1 billion to $1.25 billion of new Uber shares at a company valuation of $69 billion and 14% and 17% of the company"s stock from current investors at a discounted valuation.

Earlier media reports suggested Softbank would pay $1 billion at the $69 billion valuation, and $9 billion at a valuation closer to $50 billion.

However, while the prospects for the deal look promising, there’s still time for it to fall apart. If it does, how long before Kalanick’s relationship with Benchmark once again devolves into acrimony?

Look Who Kalanick Just Appointed To The Uber Board Without Consulting Anyone

It looks like Travis Kalanick is preparing for all-out war in the Uber boardroom.

The Uber co-founder and former chief executive officer - who retains control over three board seats, including his own - has finally filled his long-vacant seats. And guess whom he picked to fill them? Former Xerox Corp. Chairwoman and CEO Ursula Burns...and former Merrill Lynch Chairman and CEO John Thain, "ratcheting up a Machiavellian battle for control of the world’s most valuable startup" as Bloomberg put it. Uber immediately challenged the appointments, calling them "a complete surprise."

“I am appointing these seats now in light of a recent board proposal to dramatically restructure the board and significantly alter the company’s voting rights,” Kalanick said in a statement emailed to Bloomberg. “It is therefore essential that the full board be in place for proper deliberation to occur, especially with such experienced board members as Ursula and John.”

As many may remember, Thain was the last CEO and chairman of Merrill Lynch before it was absorbed by Bank of American during the financial crisis. The last leader of an independent Merrill Lynch was roundly criticized for the same venal behavior as other too-big-to-fail CEOs - BOA paid a $16.7 billion fine in 2014, at the time the largest single settlement in US history, partly for Merrill"s witholding of crucial information (namely, that the products were stuffed with garbage subprime loans while being marketed as AAA) to buyers of its MBS and CDO products. There was, of course, also the whole $35,000 "commode on legs" incident as part of Thain"s $1.2 million office redecoration (which also included $17,100 traveling toilet boxes and a $15,000 dog umbrella stand).

Thain was, appropriately, singled out for criticism by former President Barack Obama, who accused him of "lining his pockets" - and those of his employees - at the taxpayers" expense by handing out massive bonuses after BofA accepted $45 billion in TARP funds.

Kalanick - who resigned as CEO on June 20 after a longrunning battle between him and the company"s largest shareholder, Benchmark Capital - is making the appointments without consulting the rest of the board, according to the Wall Street Journal, which broke the story. He was granted control of three board seats as part of $3.5 billion investment from a Saudi wealth fund in 2016.

The appointment is particularly controversial because Kalanick is presently being sued by Benchmark, who claim he mislead the company"s investors in order to gain control over an additional board seat, and as such the appointments appear to be the latest salvo in Kalanick"s war with Benchmark.

As WSJ noted, the appointments could serve to push back against Benchmark, which also holds a board seat and led other members in a coup to push Kalanick out, which has proposed a new voting structure for shareholders allowing them to vote based on the size of their stake, rather than the current system which rewards the earliest investors with greater voting power. Travis confirmed as much in a statement to WSJ, when he said he believed the "full board should be in place" before boardmembers vote on the proposal.

“I am appointing these seats now in light of a recent board proposal to dramatically restructure the board and significantly alter the company’s voting rights,” Mr. Kalanick said in the statement. “It is therefore essential that the full board be in place for proper deliberation to occur, especially with such experienced board members as Ursula and John.”

It"s also notable that the appointments come just days after Softbank, which is in talks to potentially invest as much as $10 billion in the cash-burning ride-sharing company, reportedly struck a deal with Benchmark to do everything in its power to oppose Kalanick"s efforts to be reinstated as CEO if it becomes an Uber shareholder and gains a board seat.

According to Bloomberg, Uber expressed concern at Kalanick’s announcement: "The appointments of Ms. Burns and Mr. Thain to Uber’s board of directors came as a complete surprise to Uber and its board," the company said. “That is precisely why we are working to put in place world-class governance to ensure that we are building a company every employee and shareholder can be proud of.”

Uber’s board had been scheduled to vote Tuesday on a plan to revamp the company’s corporate governance, a person familiar with the matter said.

Kalanick remains supportive of Khosrowshahi, the person said. The former CEO saw the two appointments as a way to improve the company’s board of directors ahead of the impending vote on Uber’s governance structure, the person said.

To be sure, Kalanick has reportedly told friends and family that he has no intention of returning as CEO - though he might be interested in some kind of senior-level operations position. However, his actions would suggest something entirely different. Of course, considering the astounding run of scandals that erupted under his watch - from claims of sexual harassment, a federal bribery investigation, and the revelation that Uber intentionally blocked law enforcement agents from using its app - the notion of Kalanick returning as CEO seems almost incongruous. Since leaving, his legacy has only been further tarnished by the London taxi regulator"s decision to revoke the company"s operating license, citing abuses that largely occurred during his tenure.

But regardless of whether Kalanick"s ultimate aim is to return as CEO, there"s a more pressing matter at hand: Preventing Benchmark, his primary boardroom nemisis, from asserting even more control even as skepticism continues to grow about the mega valuation of the cash-burning, regulator-flouting Silicon Valley unicorn he helped create.

WTI Crude Fails At $50 Again As Rig Count Tumbles Most In 8 Months

As Texas slowly normalizes from Hurricane Harvey"s impact, production has rebounded but the rig count continues to tumble (down 7 to 749 this week). This is the biggest weekly drop in oil rigs since Jan 2017 and June 2016. WTI Crude futures have once again tested $50 (and failed) this morning.

This is the 5th week in a row with no increases in oil rig counts.

The massive collapse in US crude production last week - with most of Texas offline - has recovered somewhat with a 572k surge in production this week. However, it is clear that levels of production are well off pre-Harvey levels...

WTI retested $50 this morning, and failed, but RBOB gasoline is on the rise...“The dollar is once again weakening and that is adding some support to oil too”

However, some remain bulish - “The market is realizing that demand is a lot stronger than there was given credit for,” says Phil Flynn, senior market analyst at Price Futures Group. “The untold story hidden behind the glut has been the demand growth”

WTI/RBOB Drop After Harvey Prompts US Crude Production Collapse, Biggest Inventory Build In 6 Months

Last night"s first glimpse of Harvey"s impact on energy confirmed a sizable crude build but only modest gasoline draw. WTI/RBOB prices slid into the DOE print and extended losses (after a quick kneejerk higher) following a bigger than expected crude build (+4.58mm vs +4mm exp). Gasoline and Distilates saw bigger draws than API reported but it was the collapse in Lower 48 crude production that stood out with most of Texas offline.

API

• Crude +2.79mm (+4mm exp) - biggest build in 5 months


• Cushing +669k (+1mm exp)


• Gasoline -2.544mm (-5.2mm exp) - biggest draw in 6 weeks


• Distillates -610k

DOE

• Crude +4.58mm (+4mm exp) - biggest build in 5 months


• Cushing +797k (+1mm exp)- biggest build in 5 months


• Gasoline -3.20mm (-5.2mm exp)- biggest draw in 2 months


• Distillates -1.396mm

The inventory changes reported by the API were much smaller than those forecast by analysts. As a reminder, Saxo Bank"s Ole Hanson notes that "inventory data later is a lot of moving parts which could be quite skewed away from what we’ve seen in recent weeks." Additionally, investors “are going to be skeptical of the data,” James Williams, an economist at energy researcher WTRG Economics, told Bloomberg. “It might be pretty flaky data this week and next, so I don’t expect to see a big market-mover”

Bloomberg"s Fernando Valle notes energy"s past week was all about Hurricane Harvey as refineries shuttered, choking output and hauling down inventories of gasoline and distillates.

Bigger than expected crude build and bigger gasoline and distillate draws than API reported...

Bloomberg"s Fernando Valle points out that the increase in crude inventories was largely expected after the devastating impacts of Hurricane Harvey on the Gulf Coast. The draw on refined product inventories was weaker than expected, as lost demand -- both locally and abroad -- offset lower-than-expected refinery utilization. Investors" focus will now shift to the restart of refineries and export ports.

As one might expect, Gulf Coast imports fell to a record low.

Bloomberg"s David Marino notes that exports tumbled with Texas ports closed.

Crude was the lowest since 2014, before the export limits were lifted. Gasoline fell by more than half to 319,000 barrels a day, the least in four years, and distillate shipments were the lowest since 2011. Look for those numbers to rebound as ports and pipelines reopen fully.

Production declined in the previous week, and with most of Texas ofline last week - Crude production in the Lower 48 collapsed...

This is the biggest week-on-week fall since August 2012, when Hurricane Isaac shut in more than 1.3 million barrels a day of Gulf of Mexico production.

WTI and RBOB have drifted lower after last night"s API data, heading into the DOE data. The kneejerk reaction to the crude build, gas draw and production crash was higher prices...

But that did not last long...

Brent “reached the May high and so far it’s been firmly rejected,” says Ole Hansen, head of commodity strategy at Saxo Bank. “It’s quite significant if we are getting a decent rejection here as it could indicate a short-term top in the market”

“It’s a market that is starting to struggle to move much higher, Brent crude up to $55 is probably as good as it gets at this stage”: Hansen

De-Dollarization Accelerates: China Readies Yuan-Priced Crude Oil Benchmark Backed By Gold

Authored by Tsvetana Paraskova via OilPrice.com,

The world’s top oil importer, China, is preparing to launch a crude oil futures contract denominated in Chinese yuan and convertible into gold, potentially creating the most important Asian oil benchmark and allowing oil exporters to bypass U.S.-dollar denominated benchmarks by trading in yuan, Nikkei Asian Review reports.

The crude oil futures will be the first commodity contract in China open to foreign investment funds, trading houses, and oil firms. The circumvention of U.S. dollar trade could allow oil exporters such as Russia and Iran, for example, to bypass U.S. sanctions by trading in yuan, according to Nikkei Asian Review.

To make the yuan-denominated contract more attractive, China plans the yuan to be fully convertible in gold on the Shanghai and Hong Kong exchanges.

Last month, the Shanghai Futures Exchange and its subsidiary Shanghai International Energy Exchange, INE, successfully completed four tests in production environment for the crude oil futures, and the exchange continues with preparatory works for the listing of crude oil futures, aiming for the launch by the end of this year.

“The rules of the global oil game may begin to change enormously,” Luke Gromen, founder of U.S.-based macroeconomic research company FFTT, told Nikkei Asia Review.

The yuan-denominated futures contract has been in the works for years, and after several delays, it looks like it may be launched this year.

Some potential foreign traders have been worried that the contract would be priced in yuan.

But according to analysts who spoke to Nikkei Asian Review, backing the yuan-priced futures with gold would be appealing to oil exporters, especially to those that would rather avoid U.S. dollars in trade.  

“It is a mechanism which is likely to appeal to oil producers that prefer to avoid using dollars, and are not ready to accept that being paid in yuan for oil sales to China is a good idea either,” Alasdair Macleod, head of research at Goldmoney, told Nikkei.

WTI/RBOB Slide After Oil Production Surge Offsets Biggest Crude Draw Since Sept

Following last night"s mixed mesage from API (crude draw, gasoline build), WTI prices have gone nowhere as all eyes focus on DOE data this morning. Confirming API"s trend, crude saw its biggest draw since Sept 2016 but Gasoline, Distillates, and Cushing (most since March) saw builds which upset the machines and sent prices lower. Crude production rose once again to its highest since July 2015.

API

• Crude -9.2mm (-3.38mm exp) - biggest draw since Sept 2016


• Cushing +1.7mm (+700k exp) - biggest build since March


• Gasoline +301k (-450k exp) - second weekly build in a row


• Distillates -2.1mm (-250k exp)

DOE

• Crude -8.945mm (-3.38mm exp) - biggest draw since Sept 2016


• Cushing +678k (+700k exp) - biggest build since March


• Gasoline +22k (-450k exp)


• Distillates +702k (-250k exp)

Last week"s surprise build in gasoline (confirmed by API) and big draw in crude (also confirmed by API overnight) remains the big focus and DOE data confirmed it with the biggest crude draw since Sept 2016 but builds in products and at Cushing...

While the builds in produst were modest, they were nevertheless a surprise shift in trend from draws to builds...

Imports from Saudi Arabia jumped 47 percent to 813,000 barrels a day, but remain well under the 1-million barrel figure exceeded through much of the first two quarters of this year.

As Bloomberg"s David Marino notes, the total stockpile draw of 7.32 million barrels brings inventories to the lowest since January 2016, but still more than 200 million barrels above November 2014, when the glut really started building up. A lot of work still to do, as OPEC well knows.

Some more details, courtesy of Reuters: total commercial stocks fell -8.9 million bbl to 466 million bbl in the week to Aug 11 (much faster than normal at this time of year).

Total stocks are now -25 million bbl below 2016 level but... +134 million bbl over 10-yr average.

Stocks are now down -13 million bbl since start of year compared with +40 million rise in 2016 and 10-yr avg of +25 million, as the rebalancing appears to be taking shape.

Meanwhile, refinery throughput unchanged last week"s record 17.6 million b/d.

One number which the market was closely watching were gasoline stocks, which disappointed the bulls by rising fractionally by 22kb, and basically unchanged at 231 million bbl, despite an expectation of a 1mm decline.

As a result, gasoline stocks are now 2.3mm bbl below similar levels last year, but are 19 mm bbls above the 10 year average.

Finally, while domestic production increased again, so did imports, which accelerated by +364,000 b/d to 8.1 million b/d in the week to Aug 11

While rig count growth has stabilized, crude production continues to rise in the Lower 48 (though had dropped in Alaska for 3 straight weeks) but both saw a rise this week (total production up 79k) as Lower 48 production hit its highest since July 2015...

Bloomberg notes that U.S. oil production from major shale plays is set to hit another record at 6.15 million barrels a day next month, according to the EIA. It"s not just the Permian that"s growing, as the agency sees higher output across the board.

WTI Crude prices barely budged from last night"s API print heading into the DOE data, spiked higher on the crude draw but slipped back lower on product builds and production surge...

Heading into the print, "the size of a potential draw in crude inventories is “going to be the most material” aspect of the report, Brad Hunnewell, senior equity analyst at Rockefeller & Co., says, adding that "investors also expect to see a rise in gasoline demand."

However, as Bloomberg Intelligence energy analyst Vince Piazza notes:

No change to our bearish view: long road to recovery still ahead. We still see mid $50-$60s as the threshold for acceleration of U.S output. Commentary from exploration and production company conference calls implies drilling efficiencies are aiding productivity.

Elevated refining utilization has helped deplete bloated inventories across the petroleum value chain during the key seasonal driving period, and exports have helped as well. However, the market is seeing the end to summer, with runs traditionally declining in early fall.

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Barclays Exit Of Energy Business Triggers Surge In Oil Options Trades

Several hours before the US stock market opened on Monday, the commodity world was shaken by an unexpected surge in crude options trades, with traders noting that "someone is either moving positions, blown up or getting out of commodities. MASSIVE amount of blocks going through in crude options."

Someone is either moving positions, blown up or getting out of commodities. MASSIVE amount of blocks going through in #crude #options.#OOTT

— Mark Scullion (@mscullion) July 24, 2017

A Bloomberg alert shortly after confirmed the huge size of trades crossing the tape, when nearly $100 million in oil options traded simultaneously:

WTI crude oil options traded the equivalent of 48m bbl of contracts via block, according to data compiled by Bloomberg.

• Total value of all options combined is ~$99m


• Options include contracts from September 2017 through December 2020


• 5 largest blocks were: 4.4k Dec. $90 calls, 2.8k Dec. $60 calls, 2.5k Dec. $125 calls, 1.7k Dec. $95 calls, 1.4k Dec. $46 calls


• Click here for Excel detailing the value of each trade


• Trades all took place at 9:35am London time


• Contracts also traded with 9.6k lots of futures


• Similar trades also occurred on Brent in smaller volumes ~10:35am London time

As it turns out later, it wasn"t a fund liquidating, but Barclays selling the last part of its legacy oil book to an unidentified buyer, that triggered the surge in trading of exotic options most of which were written in the era of higher crude prices, Bloomberg reported this afternoon.

The size of the trade, which set traders on alert earlier, represented some 48 million barrels of contracts which "represents more than a quarter of the entire volume on an average trading day."

Barclays announced that it was exiting its energy trading business altogether last December - which until that point had been housed in its macro-trading unit - when the British bank joined an exodus that analysts then said raised concern among oil producers that falling liquidity means they cannot use derivatives for their basic function: to hedge risk by locking in future prices. As Reuters reported at the time, the departure of Barclays exacerbated the scarcity of counterparties for trade when producers are trying to hedge their production for 2018 and beyond, potentially raising the cost to lock in that output. That increase, analysts speculated, could force some cash-strapped producers to forgo protection altogether, putting them at risk if the market takes another leg down.

One point of uncertainty in December was what Barclays was going to do with its trade book: at the time, analysts pointed out that Barclays could unwind hedges that it already conducted with market participants. The other option would be to sell the hedge book, thereby passing on any risk to another player.

This is precisely what happened on Monday, when Barclays" transaction marked the final sale of the business.

A look at the derivatives that crossed the tape on Monday "were suggestive of a bygone era of oil prices above $100 a barrel", Bloomberg wrote. The strike prices for some of the options were far from today’s prices, suggesting they may have been part of deals struck years ago.

Three of the 4 largest trades would profit if crude rises above $90, $95 or $125 a barrel by the end of this year. There were also rarely seen deep “in the money” options on the global benchmark Brent, that would allow the holder to sell crude at $80 a barrel. The contracts ranged from September this year to December 2020.

As Bloomberg concluded, while the transactions are small for Barclays, they’re much more profound for an oil market where banks are increasingly scaling back. Morgan Stanley, JPMorgan Chase & Co. and Deutsche Bank AG all reduced or exited commodities trading over the past several years, while Goldman Sachs Group Inc. was said to be reviewing its activities.

The counterpart(ies) on the Barclays trade remain unidentified.

Perhaps the best news from today"s book sale is that it concluded smoothly and without any major market impact, suggesting it was planned well in advance. The question is what would happen to the oil derivative market if a similarly-sized block hit the tape ad hoc and without prior warning. For the sake of the Fed"s "market stability" mandate, let"s hope we don"t find out.

WTI/RBOB Jump After Major Inventory Draw Despite Biggest Production Surge In 6 Months

Oil bounced notably overnight after a surprisingly large crude build reported by API, but there was some selling in QTI/RBOB into today"s DOE data, but that ended quickly as DOE reported major inventory draws across the board sending WTI spiking above $46. However, after last week"s drop, US crude production (in the Lower 48) soared by its most in 6 months.

API

• Crude -5.8mm (-2.5mm exp)


• Cushing -1.4mm


• Gasoline -5.7mm


• Distillates +400k

DOE

• Crude -6.299mm (-2mm exp)


• Cushing -1.334mm (-700k exp)


• Gasoline -3.669mm (-1.8mm exp)


• Distillates -1.85mm (+500k exp)

Draws across the board...

... which as Bloomberg summarizes, "provided fodder for the rebalancing argument. Overall inventories fell the most since September, refinery rates are rising again. Overall implied demand increased to a record high. A good report for bullish traders."

Others agreed “Attention is likely to be focused not only on inventory trends, but also on gasoline demand in the run-up to the Fourth of July, as well as on U.S. oil production”: Commerzbank

Compared to historical data, 2017 inventories are still +9 million bbl above their 2016 level at this time of the year, and +157 million bbl over 10-yr average...

... and as Reuters notes, commercial stocks are up +23 million bbl since start of year compared with +43 million bbl in 2016 and 10-yr avg of +35 million bbl

Meanwhile, helping the inventory draw was the drop in oil imports to 7.7mm from 8.0mmb/d last week.

As one would expect from the biggest driving weekend of the year, Gasoline Demand rebounded.

US Crude production in the Lower 48 fell the prior week (the biggest weekly drop since August) and last week saw a decline in the US oil rig count... But crude production rebounded, as expected, as offshore platforms came back online following Tropical Storm Cindy passed. Output in the lower 48 up 105,000 barrels a day, offsetting a small drop in Alaska due to seasonal maintenance. This is the highest production since Aug 2015...

“If we see a pullback in production, that really may get the market going,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said by telephone.

Total inventories slid by 13.4 million barrels, the most since September, providing some ammunition for bullish investors.

WTI/RBOB bounced overnight after API but faded notably into the DOE print, but then spiked above $46 on the big draws as everyone, for now, ignores the production surge.