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 Algos Uncertain After Gasoline Inventories Draw But Crude Production Surges

WTI crude prices managed to scramble back up to pre-API-tumble levels ahead of DOE"s data dump this morning with all eyes on gasoline inventories, which did not disappoint showing a small draw (in line with expectations) along with crude"s draw which was roughly in line with API and expectations. Production continues to rise to highest since July 2015.

API

• Crude -3.595mm (-3.5mm exp)


• Cushing -462k (+300k exp)


• Gasoline +1.402mm (-1mm exp)


• Distillates +2.048mm

DOE

• Crude -3.33mm (-3.5mm exp)


• Cushing -503k (+300k exp)


• Gasoline -1.22mm (-1.25mm exp)


• Distillates +28k

Builds in products (gasoline and distillates) according to API is weighing on markets (and a big shift from last week"s massive crude draw), but DOE data showed a draw for gasoline (in line with expectations) and a draw for crude (in line with expectations)

Total Crude Oil Inventories dropped to the lowest since Jan 2016... But as is very clear, remains dramatically over-stocked relative to pre-2015 norms...

One crucial data point that Bloomberg"s Javier Blas notes: total U.S. oil stocks (which includes crude, refined products and the volatile "other oils" category) were unchanged last week. That"s not what the bulls need.

Amid all the bluster, we found it ironic that Crude imports from Venezuela climbed 52 percent to 987,000 barrels a day, also the most since April.

U.S. Fuel Demand Fell 0.72% in Past Four Weeks

Despite stabilization in rig counts, US crude production continues to trend higher, jumping to its highest since July 2015 last week...

A weak dollar and some BTFDing in stocks managed to scramble WTI up to the pre-API levels ahead of the DOE data... (NOTE: futures puked a little right before the print). After the data, the machines were confused but the trend for now is higher as $48 stops are run...

But its mostly noise as the algos cant decide which way to trend for now.

Bloomberg Intelligence energy analyst Vince Piazza sums up the mixed picture:

The crude stockpile drop was basically in line with mean estimates.

The net draw across the petroleum value chain is a modest positive.

However, a drop in refinery utilization foretells ebbing of demand, as driving season comes to an end.

The bearish view is reinforced by output above 9.5 million barrels a day and pushing higher, based on management commentary from 2Q earnings calls.

Dismal Data Sends Stocks Back To Highs But Bonds Ain't Buying It

Stocks "v-shaped" recovery off the lows, thanks to a good squeeze in FANG stocks, is blindly ignoring the tuymble in WTI crude, the drop in Treasury yields, and the weakness in USDJPY...

And the bottom hit when the dismal factory orders data hit...

So what happens next?

Gartman: "The Time Has Come To Be Short Of Oil Once Again"

When we pointed out yesterday that "world-renowned commodity guru" Dennis Gartman remained bearish of oil, we quoted him as saying that "it has been our intention all along to await the opportunity to sell crude oil short on protracted rally and we are getting that rally as we write. We can be patient a while longer." His patience lasted less than 24 hours, because one day later - as oil is on the cusp of extending its bullish run for a near record 9th consecutive day - Gartman this morning that "the time then has come to be short of crude oil once again."

The section of note:

CRUDE OIL PRICES CONTINUE TO ADVANCE and have now risen for 8 or 9 days in a row, depending upon when one has marked the close. Going by the CME’s official closes, yesterday was the 8th day in row higher and the “bounce” from the lows made two weeks ago amidst what was then panic liquidation has now taken the market to an almost equally over-bought, hyper-extended level to the upside.

We have maintained that the “bounce” would take crude back to The Box marking the 50-62% retracement in nearby WTI crude to somewhere between $47.00-$48.15 and for all intents that was satisfied yesterday when the high of $47.07. Note then the chart of nearby August WTI and note The Box.

The time then has come to be short of crude oil once again, and we are certain that we shall be at least as equally scoffed at for selling crude today as we were two weeks ago for urging everyone, everywhere not to be short. This recent increase has, of course, re-ignited the interest of drillers to drill and the contango is still wide enough to encourage drilling and hedging as the one year forward is very nearly $50/barrel.

It is probably just a coincidence that earlier this morning WTI was in the red and has since crept up back into positive territory.

Commodity Carnage: Copper Turns Red, Oil Plunges Near $42 Handle

Wednesday saw a bloodbath in global developed bonds. Yesterday saw Emerging Market currencies and bonds collapse. Today, it is the turn of the commodity complex as Copper erases a 7% gain intrday and crashes red, WTI Crude tumbles near a $42 handle (Trump lows) and precious metals are clubbed like baby seals...

It has the smell of margin call liquidation as it accelerated as US equity markets opened...