WTI Fails to Extend Overnight OPEC+ Gains Despite Big Crude Draw

Oil prices are up overnight, with WTI topping $74 (and Brent topping $75 – a fresh two year high), after a bigger than expected crude draw reported by API. Prices were also buoyed by reports that OPEC+ is considering raising production by 500k barrels a day (which is less than the widely expected 1mm b/d).

In another supportive voice for oil prices, OPEC Secretary General Mohammad Barkindo said on Wednesday at the meeting of the organization’s economic think-tank, the Economic Commission Board (ECB), that “the latest market developments point to much better conditions and improved outlooks” of the oil market and global economy.

U.S. Oil inventories were expected to drop by 6.3 million barrels for the week ended June 18, aided by the lifting of domestic restrictions amid vaccinations, and by exports. However, the emergence of a new variants in regions where vaccinations are slower may pressure the global economic recovery, and with it demand, according to Vince Piazza, senior energy analyst at Bloomberg Intelligence.

API

Crude -7.199mm (-6.3mm exp)

Cushing -2.55mm

Gasoline +959k (+1.3mm exp)

Distillates +992k (+1mm exp)

DOE

Crude -7.614mm (-6.3mm exp)

Cushing -1.833mm

Gasoline -2.93mm (+1.3mm exp)

Distillates  +1.754mm (+1mm exp)

Crude inventories dropped for the 5th straight week…

Source: Bloomberg

US crude production was flat over last week and remains surprisingly well disciplined given the rising price and rig counts…

Source: Bloomberg

WTI hovered just below $74 ahead of the official data and despite a very brief spike, was unable to extend gains…

“There’s a lot of people talking about $100 crude and that’s driving the market,” said Bob Yawger, director of energy futures at Mizuho.

“(Because) of tight physical markets and healthy demand perceptions, the risk remains skewed to the upside,” oil brokerage PVM said.

Finally, we note that gas prices (at the pump) are higher now that at any time during the Trump administration, directly benefiting Russia. And seasonally, this is the highest price (over $3 a gallon) for gas for this time of year since 2014…

Source: Bloomberg

The global supply deficit and further spikes in oil prices could loosen the lid that the U.S. shale industry has kept on their production and Saudi Arabia will want to avoid giving producers a reason to bring wells online, according to Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC. “They don’t want to see shale come back quickly.”