WTI Extends Gains After Crude Draw, Shrugs Off Plunging Gasoline Demand

Oil prices are extending gains this morning after last night’s API-reported crude draw and some relief that CPI (while at 39 year highs) was not worse than expected (prompting even more tightening from The Fed). Equity market gains and a weak dollar are also helping fuel the rally in crude, while European inventories are rising  (+4.5% last week according to Genscape) and China ordered some independent oil refiners to reduce crude processing ahead of the Winter Olympics, according to industry consultant JLC.

Bloomberg Intelligence’s Senior Energy Analyst Vince Piazza notes that “despite OPEC+’s pledge to increase production for January and next month, we believe the cartel will add less to the market than planned. Meanwhile, cold weather is disrupting oil production temporarily, while flights have been scrubbed because of frigid temperatures and due to rising cases of the Covid-19 omicron variant.”

For now all eyes are on the product builds and implied gasoline demand for some color on omicron’s demand impact.

API

Crude -1.1077mm (-1.85mm exp)

Cushing -3.659mm

Gasoline +10.86mm

Distillates +3.035mm

DOE

Crude -4.553mm (-1.85mm exp)

Cushing -2.468mm – first draw in 2 months

Gasoline +7.961mm

Distillates +2.537mm

Crude inventories fell for the 7th straight week. Official data confirmed the first Cushing draw in two months, and after the prior week’s massive surge in product inventories, gasoline stocks rose significantly once again…

Source: Bloomberg

Flight cancellations and mobility restrictions may continue to weigh on short-term jet-fuel demand, which has yet to recover to pre-pandemic levels, even during year-end holidays.

Total crude stockpiles, including both commercial and strategic inventories fell by 4.85 million barrels, with just 300,000 barrels taken from the SPR adding to the commercial draw of 4.55 million barrels.

Source: Bloomberg

Total US Crude stocks fell to their lowest since October 2018…

Source: Bloomberg

After crashing the previous week, gasoline demand continued to tumble last week…

Source: Bloomberg

Not good…

According to GasBuddy data, Tuesday US gasoline demand fell 3.8% from the prior Tuesday and was down 7.9% from the average of the last four Tuesdays. It’s the lowest Tuesday demand since 5/18/21.

— Patrick De Haan ⛽️📊 (@GasBuddyGuy) January 12, 2022

US crude production dropped very modestly last week…

Source: Bloomberg

WTI was hovering just above $82 ahead of the official print and extended gains after the crude draw…

Oil has made a positive start to 2022 on expectations that demand will continue to expand as the impact of the pandemic on fuel consumption gradually eases, tightening the market. In the past few weeks, crude supplies from OPEC+ member nations Kazakhstan and Libya have been disrupted.

Finally, we note that oil’s (and gasoline’s) rebound (on a drop in omicron anxiety) has pushed prices back above pre-SPR-release levels and given the lag in the supply-chain, indicates gas prices at the pump are about to start rising again…

Source: Bloomberg

Get back to work, Mr.Biden (or maybe the demand slump we noted above will keep prices down?).