WTI Extends Gains As Cushing Stocks Near ‘Tank Bottoms’; SPR Drained

After their tumble overnight yesterday amid bearish risk appetites, oil prices have soared back to new cycle highs as traders mulled the effects of rapidly tightening supplies after API reported yet another weekly drawdown in stocks at the Cushing hub.

All eyes will be the official data this morning for confirmation of Cushing’s ongoing drain…

API

Crude +1.6mm (-600k exp)

Cushing -828k

Gasoline -70k (-200k exp)

Distillates -1.7mm (-1mm exp)

DOE

Crude -2.2mm (-600k exp)

Cushing -943k

Gasoline +1.03mm (-200k exp)

Distillates +398k (-1mm exp)

Sure enough, the official data confirms another drawdown at the Cushing hub (12th draw in the last 13 weeks). Also, the official data saw a crude draw (API saw build) while products experienced modest builds…

Source: Bloomberg

The infamous ‘adjustment factor’ plunged to its lowest in 8 months…it seems like ‘they’ gave up on the manipulations.

But, most importantly for short-term price action , tank bottoms are looming at Cushing…

Source: Bloomberg

After 7 weeks of additions, the Biden admin reverted to draining the SPR last week (-250k barrels)… so much for that!

Source: Bloomberg

US Crude production remained at cycle highs (at pre-COVID-lockdown levels) while rig counts continue to decline…

Source: Bloomberg

WTI was hovering around $92.50 into the official data and extended higher after…

As Bloomberg’s Fernando Valle notes, the rally in oil prices may be its own worst enemy as consumers struggle to afford fuel.

The drop in US crude inventories helped push Brent and WTI prices over to $90 a barrel, but now that’s leading to a slower pace of fuel demand.

Refiners typically buy crude one to three months ahead of processing, so the impact of lower demand may start to show up in late October.

Traders continue to see signs of supply scarcity as the premium for near-term US oil barrels is hovering at the most expensive in over a year, indicating a market deficit.

But bear in mind that higher oil prices are also attracting added supply, Robert Yawger, executive director for energy futures at Mizuho, said in a note.

“Iranian barrels may come out of the shadows and return to the open market after diplomatic inroads. Plus, new barrels from Suriname, and Guyana, continue to hit the market,” he said.

For the Biden administration, rising oil prices are a known political problem: The president’s approval ratings swooned in the summer of 2022 when gas was creeping toward $5 a gallon and became a focus for Americans’ discontent over inflation.

Heading into next year’s election, the White House has few good options to appease motorists, having already whittled down the nation’s oil stockpile to about half its normal capacity.