WTI Extends Losses After Large Gasoline Build Signals Demand Destruction

Oil prices have slipped lower overnight following API’s reported builds for crude and gasoline and thanks to a slight headwind from a stronger dollar. Optimism about the return of gas flows from Russia tomorrow ease pressure on the potential ‘transition’ demand to oil also.

“Right now liquidity is thin, people are away on holiday, there’s more machines than humans,” Amrita Sen, co-founder of consultant Energy Aspects Ltd., said in a Bloomberg Television interview.

“We can continue to trade in this very technical band. But structurally this is a market defined by underinvestment.”

All eyes are on the official data this morning for signs of demand destruction…

“The market is hyper focused on demand metrics and recent US demand data has failed to inspire confidence,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Management.

Today’s official data will be closely watched for bulls to reengage with the market.

API

Crude +1.86mm

Cushing +523k

Gasoline +1.29mm

Distillates -2.153mm

DOE

Crude -445k

Cushing +1.143mm

Gasoline +3.498mm

Distillates -1.295mm

US Crude inventories unexpectedly drew-down last week (-445k) but gasoline stocks surged by 3.498mm barrels (the second straight week of increases)…

Source: Bloomberg

There was a 5mm draw from SPR last week. Total nationwide oil inventories, including commercial stocks and oil held in the SPR, fell by 5.4 million barrels in the week to July 15.

Last week’s implied gasoline demand data was jarring to say the least – the sheer volume of decline in the weekly figure, whether it proves to be an outlier or not, represents a stark shift around the demand destruction narrative. With a week-on-week decline of 1.35 million barrels a day, the plunge is the third largest on record dating back over thirty years, only bested by the first two weeks of Covid lockdowns in March 2020.

Since the last report, two pipelines with some link to the critical Cushing hub have seen an outage, which helps explain the rise in stocks. The 135k b/d Osage pipeline pushing oil out of Cushing is restarting following a leak. Meanwhile, TC Energy’s Keystone line has pared flows after the loss of power to a pumping station in South Dakota. It’s not clear when the affected segment will resume normal service as the company operating the substation is dealing with vandalism and damages.

US Crude production fell for the second straight week…

Source: Bloomberg

WTI was hovering around $99 ahead of the official data and slipped lower after the gasoline build…

The Kingdom’s foreign minister said there is no lack of oil on the market, but a lack of oil refining capacity to turn it into fuels, and confirmed an upper limit to Saudi capacity (and absolutely no commitment to increased production).

“The whole concept of going to Saudi Arabia to ask for extra production is sort of impractical,” Fereidun Fesharaki, chairman of industry consultant FGE, told Bloomberg TV, noting that the kingdom has already been pumping crude at close to its historical peak, with relatively little spare capacity likely left to tap.

“If there’s no buffer in the market, the prices will go haywire.”

For now, US retail gas prices are back below $4.50, but still over 20c higher than when Biden unleashed the SPR.