WTI/RBOB Sink After Surprise Gasoline Build, Crude Production Hits 20-Month Highs

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Following API’s surprise gasoline build (and small crude draw), DOE confirmed concerns with a surprise build in gasoline inventories. Crude inventories drew down for the 2nd week in a row. WTI prices slipped though as production rose to its highest since Aug 2015.

API

  • Crude -840k (-1.4mm exp)
  • Cushing -672k
  • Gasoline +1.374mm (-2mm exp)
  • Distillates -1.8mm

DOE

  • Crude -1.034mm (-1.4mm exp)
  • Cushing -778k (+175k exp)
  • Gasoline +1.542mm (-2mm exp)
  • Distillates -1.955mm (-1mm exp)

Crude inventories dropped for the second week in a row but gasoline saw the first build in 9 weeks…

 

Crude Production continues to trend higher with lagged rig counts. Production is now at its highest since Aug 2015.

At this rate of growth, the U.S. could set a new weekly production record shortly after OPEC next meets to discuss its output deal.

WTI/RBOB bounced back (in the face of a rising dollar) after tumbling on API last night but ahead of the DOE data began to roll over. Algos went wild on the DOE print but the trend was lower in WTI and RBOB…

As Bloomberg’s Javier Blas notes, the bulls really, really, really need stronger gasoline demand growth pronto. If not, the U.S. will enter the key driving season with too much gasoline on storage. Over the last four weeks, motor gasoline product supplied averaged over 9.3 million barrels per day, down by 0.7% from the same period last year. Refineries are running very hard to clear the crude glut, and the risk is creating another glut down the chain.

As Bloomberg reports, OPEC Secretary General Mohammad Barkindo sees producers near to re-balancing the market, while the United Arab Emirates Energy Minister Suhail Al Mazrouei says “it’s going to take a long time to reduce inventories.” Draining the stockpile is going to take a significant period with supply running below demand. We don’t quite seem to be in that position yet.

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