WTI Extends Gains AFter Biggest Crude Build In 3 Months

Oil prices leaked lower overnight after a three-day advance as traders assess the fallout from Ukrainian attacks on Russian energy infrastructure and a Federal Reserve interest rate decision later Wednesday.

WTI was trading around $64.50 a barrel after gaining 3.2% in the previous three sessions. Ukraine attacked the Saratov refinery in its latest strike on Russian energy facilities – which have helped cut the OPEC+ member’s production to its lowest post-pandemic level, according to Goldman Sachs.

A big crude draw reported by API overnight will prompt some buying pressure if confirmed by the official EOA data.

API

• Crude -3.42mm (-1.6mm exp)

• Cushing

• Gasoline -691k

• Distillates +1.9mm

DOE

• Crude -9.285mm – biggest build since June

• Cushing -296k

• Gasoline -2.347mm

• Distillates +4.046mm

US crude stocks plunged over 9 million barrels last week (far greater than expected and the biggest draw since June). Gasoline inventories also saw a drawdown while distillates stocks rose for the 3rd straight week…

Source: Bloomberg

Even accounting for the 504k barrel addition to the SPR, total US commercial crude stocks saw their second biggest weekly decline in 15 months…

Source: Bloomberg

US crude production remains near record highs as the decline the rig count has finally stalled…

Source: Bloomberg

The recent gains haven’t been enough to push oil out of the $5 band it has been in for most of the past month-and-a-half, buffeted between geopolitical tensions and bearish fundamentals.

The accelerated return of OPEC+ supply has boosted predictions that a glut will form later in the year, while surging oil tanker earnings are offering a sign of higher output.

WTI has extended its gains from overnight weakness and is trading just in the green on the day…

Oil markets are focused on Ukrainian attacks on Russian energy infrastructure, as well as the wider risk of escalation following a drone incursion into Poland last week, said Emily Ashford, head of energy research at Standard Chartered Plc.

“We think a 25 basis-point Fed cut is priced in, but a 50 basis-point surprise would be further risk-on for markets,” Ashford said in reference to the imminent Fed decision.

Oil’s implied volatility was subdued after it fell to the lowest in more than three weeks on Monday, as outright prices remain firmly stuck within the narrow range seen since early August.