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.

WTI/RBOB Mixed After Biggest Crude Draw Since 2016, Production Hits 21-Month Highs

Oil prices have roller-coastered since last night"s API report of the biggest crude draw since September (hurricane-impacted), but kneejerked higher after DOE confirmed a big crude draw (though less than API), the largest since Dec 2016 and 8th weekly draw in a row. Distillates saw a surprise build, crude exports hit a record high, and production rose again to its highest since Aug 2015.

API

• Crude -8.67mm (-3mm exp) - biggest since Sept 2016


• Cushing -753k


• Gasoline -1.726mm (-1.5mm exp)


• Distillates +124k

DOE

• Crude -6.43mm (-3mm exp)


• Cushing -747k (-500k exp)


• Gasoline -2.86mm (-1.5mm exp)


• Distillates +394k (-700k exp)

8th weekly crude draw in a row and biggest since Dec 2016... surprise build in distillates

U.S. COMMERCIAL CRUDE STOCKS are drawing down much earlier and harder than normal for time of year pic.twitter.com/WRWVPPrYsU

— John Kemp (@JKempEnergy) June 1, 2017

Bloomberg"s Laura Blewitt notes that Today is June 1st -- an important day for Bakken crude. As of today, Energy Transfer"s controversial Dakota Access Pipeline is now in service, providing a key outlet for oil to the U.S. Gulf Coast.

Lower 48 production continues to rise... from 8.815mm to 8.835mm - highest in 21 months...

Rystad Energy says U.S. crude production will exceed 10 million barrels a day before year-end, echoing sentiment from other analysts.  

Crude exports hit a new record high...

Gasoline demand at its highest since the peak last summer - seasonally ahead...

It"s been a week since the OPEC extension deal and prices continue to hold lower... GLENCORE CEO SAYS OPEC HAS LOST MARKET CONTROL DUE TO SHALE - but prices were holding above API lows heading into the DOE print (ticking up into the data)= and bounced higher (though only marginally) on the data...

Close up...

WTI/RBOB Surge After Massive Gasoline Draw (Despite Record Crude Glut)

Following API"s reported massive build in crude (and draw in gasoline), DOE confirmed the extreme moves with a major 8.2mm crude build and a massive 6.56mm draw in gasoline (the biggest since April 2011). US Crude production rose once again - to 13-month-highs.

API

• Crude +11.6mm (+1.4mm exp)


• Cushing +788k


• Gasoline -5.00mm


• Distillates -2.9mm

DOE

• Crude +8.21mm (+2mm exp)


• Cushing +867k (+406k exp)


• Gasoline -6.56mm (-1.99mm exp)


• Distillates -925k (-1mm exp)

This is the 9th weekly rise in crude inventories (some chatter on API data including SPR barrels but that was marginal at best compared to the headline print)...The gasoline draw is the biggest since April 2011

Notably West Coast (PADD 5) CRUDE STOCKS INCREASE 4.65M BBL, MOST SINCE OCT. 1999 ..

Bloomberg"s Bert Glibert notes that based on bill of lading data, the biggest sources of waterborne barrels to PADD 5 last week were Ecuadorian Napo and Kuwait Crude oil.

This is a new record high for US crude inventories...“Inventory drawdown slower than I thought after cuts,” Saudi Arabia"s Khalid Al-Falih admits.

Putting the 2017 surge in context, commercial crude stocks are now up 49 million barrels YTD, compared to 38 million in 2016 and a 22MM average over the past decade according to Reuters.

In the last week, oil imports accelerated to 8.15MMbpd from 7.6MMbpd the week before.

However, offsetting the spike in crude imports, gasoline imports fell to the lowest level since 1999.

As a result, gasoline stocks declined by 6.6mmbpd to 249 mm barrels, although still well above the 10 year median for this time of the year.

Distillate stocks likewise dipped modestly in the last week, although remain at the higher end of the last 10 year range as the following Reuters chart shows:

Meanwhile, US crude production continues to trend higher with lagged rig counts, even as Saudi oil minister Khalid Al-Falih had complained that “the green shoots in the U.S. are growing too fast.” In the latest week, US Crude production rose by another +56k b/d, or +0.6% W/W to 9.088MMbpd

This means that US oil production, which is again rapidly rising on leaner, more efficient production technologies, is now just 5.5% below its lifetime high, a level it will surely overtake rapidly should the price of crude not tumble from current levels.

And as a reminder, the EIA published another bullish outlook for U.S. oil production in yesterday"s Short-Term Energy Outlook. It raised the 2017 year-on-year increase in crude and condensate production to 330,000 b/d from its previous assessment of just 100,000 b/d and now sees output above 10 million barrels a day by the end of 2018. Rebalancing the market is getting more difficult.

Notably the RBOB bounce (on API inventory draw) had been largely erased before the DOE data (and WTI had extended losses)...but the better than API crude build and huge gasoline draw triggered panic buying...

Bloomberg"s Vince Piazza warns U.S. inventories across the product value chain remain elevated, with crude oil 39% above the five- year average and distillates, jet fuel and gasoline between 5.5% and 22% higher. This, along with the 51% rebound in rig count since last year, and the robust level of more than 5,300 DUCs (drilled yet uncompleted wells) implies the near-term return of U.S. hydrocarbon volume with an environment of lower range-bound prices.

It appears traders are starting to realize...

WTI, RBOB Tumble After Massive Product Inventory Builds

Following API"s larger than expected crude draw (and huge product builds), DOE reports massive builds in Distillates (+10mm - biggest sine Jan 2015) and Gasoline (+8.3mm - biggest since Jan 2016) and another big build in Cushing inventories. Crude inventories drew down 7.05mm barrels - confirming API"s data. US crude production also picked up and WTI prices tumbled.

API

• Crude -7.431mm (-2mm exp)- biggest draw since Sept 2016


• Cushing +482k (+900k exp)


• Gasoline +4.25mm (+1mm exp)- most since Jan 2016


• Distillates +5.244mm (-800k exp) - most since Jan 2016

DOE

• Crude -7.051mm (-2mm exp) 


• Cushing +1.074mm (+200k exp)


• Gasoline +8.307mm (+1mm exp) - most since Jan 2016


• Distillates +10.051mm (-800k exp) - most since Jan 2015

Total crude stockpiles remain over 35% above the five-year seasonal norm.

Crude stockpiles by region:

• Padd 1, 12.4 million, lowest in almost two years.


• Padd 2, 151.5 million, highest since May.


• Padd 3, 240.5 million, second-lowest since February.


• Padd 4, 23.6 million.


• Padd 5, 50.95 million, about 3 million below the 52-week average.

Bloomberg"s Javier Blas warns that - One big caveat reading the data today: there was significant fog last week around the Houston Channel, a key waterway to move both products and crude in and out big refineries. That could have affected the figures.

The other factor disruption this week"s figures, as in December, is the fact that U.S. refiners in Texas and Louisiana try to reduce the size of their stocks to lower their year-end tax bill. As such, crude inventories typically drop in December in the region.

Cushing jumps to the highest level since May with the sixth gain in seven weeks.

Bloomberg notes that much of that draw in crude stocks looks to be attributable to imports which dropped by 984 kbbls/d across the US with 612 kbbls/d of that coming in PADD 3, that"s a 4,284 kbbls/d drop over the week.

US Crude production continues to generally follow the lagged trend of the rising rig count...

Bloomberg notes that U.S. production has been trending higher since September, with the Energy Information Administration sharply increasing its weekly estimates in November and again December. Newly released monthly data for October shows the EIA underestimated output significantly (weekly figures pointed to 8.5 million barrels a day, while the monthly data was of 8.8 million barrels a day).

WTI tagged $54 this morning - higher post-API data - but is dropping after the huge builds...

And Gasoline futures also...