WTI Holds Gains Despite Surprise Crude Build (Biggest Since June)

Oil prices continues to rise (amid geopolitical tensions), supported by an API-reported crude draw overnight and OPEC+ headlines denying any apparent rift or plans to increase production aggressively.

“Iran sits astride the world’s most strategic energy region, oil- and gas- production facilities and transit choke points,” said Bob McNally, founder of Rapidan Energy Group and a former adviser to president George W Bush.

“So, when Iran is involved in a shooting war with its neighbours, you have to price in some geopolitical disruption risk, especially when it comes to Israel,” he added.

Will the already low (tank bottoms) Cushing (and total crude) stockpiles get tested further…

API

Crude -1.46mm (unch exp)

Cushing +700k

Gasoline +900k (-300k exp)

Distillates -2.7mm (-1.4mm exp)

DOE

Crude +3.889mm (unch exp) – biggest build since April

Cushing +840k

Gasoline +1.119mm (-300k exp)

Distillates -1.284mm (-1.4mm exp)

In direct conflict with API’s report, the official data shows a large 3.9mm barrel build in crude stocks (and an increase in stocks at the Cushing Hub). Presumably this surprise crude build was driven by anticipation of Hurricane Helene’s impacts…

Source: Bloomberg

Refinery utilization rates in the Midwest slumped to 85%, the lowest since April. On a seasonal basis, that’s also the lowest seen for this time of the year since 2020. That’s mainly the result of BP Whiting carrying out maintenance. On the Gulf Coast, rates are the lowest since March amid planned work. PBF Chalmette, in New Orleans, has take two gasoline units — an FCC and an alkylation unit — offline for work.

Gasoline demand plunged to a four-year seasonal low following a fifth straight decline last week.

Source: Bloomberg

The Biden admin added 660k barrels to the SPR which when added to the commercial build is the largest increase since June.,..

Source: Bloomberg

US Crude production remains near record highs…

Source: Bloomberg

Oil pries are holding their gains despite the crude build…

Source: Bloomberg

“This fresh escalation is serious and justifies oil’s jump,” said Bill Farren-Price, a veteran oil market watcher and senior research fellow at the Oxford Institute for Energy Studies.

“But we’ve been here before — the conflict needs to show signs of spreading to the Gulf if it is to ignite a broader and sustained oil price rally. At the moment it has not.”

Helima Croft, an analyst at RBC Capital Markets and a former CIA analyst, said oil traders needed to assess whether Israel would retaliate by directly targeting critical Iranian military and economic assets, including energy infrastructure.

“In April, the Israelis opted for a muted response to the Iranian missile and drone strikes. And yet in the past two weeks the [government of Israeli Prime Minister Benjamin Netanyahu] has demonstrated an increasingly high-risk tolerance for escalatory actions to achieve their strategic objectives.”

Of course President Biden (well – whoever is running the show behind getting ‘her’ elected) will not want to see crude prices rising (nor will Jay Powell, so soon after his mission accomplished 50bps cut out of nowhere).