WTI Sees Boost Following API's Report of Another Crude Inventory Draw

Oil Prices Surge Amid Middle East Tensions

Oil prices experienced a significant increase as spec shorts began to take into account the volatile geopolitical situation in the Middle East. Following an Iranian missile attack in Israel, WTI experienced a sharp increase, reaching nearly $72 before slightly receding.

Bob McNally, founder of Rapidan Energy Group and former adviser to President George W. Bush, noted the strategic position of Iran in the global energy sector. He stated that any conflict involving Iran, especially with Israel, necessitates accounting for potential geopolitical disruption risks.

Crude and Cushing Stockpiles Under Scrutiny

With already low crude and Cushing stockpiles, the question arises whether these will be further tested. The American Petroleum Institute (API) reported a crude draw of -1.46mm (unch exp), Cushing increase of +700k, gasoline increase of +900k (-300k exp), and distillates decrease of -2.7mm (-1.4mm exp).

In the past seven weeks, crude stocks have decreased six times, and distillate inventories have also seen a significant drop. On the other hand, Cushing stocks have risen for two consecutive weeks. As a result, total crude stocks are at their lowest since April 2022.

WTI and the Unexpected Crude Draw

WTI was slightly above $70 before the API report and experienced a slight increase following the unexpected crude draw. Bill Farren-Price, a veteran oil market watcher and senior research fellow at the Oxford Institute for Energy Studies, stated that the recent escalation is significant and justifies the jump in oil prices. However, he noted that the conflict would need to spread to the Gulf for a broader and sustained oil price rally.

Helima Croft, an analyst at RBC Capital Markets and a former CIA analyst, suggested that oil traders should consider whether Israel would respond by directly targeting critical Iranian military and economic assets, including energy infrastructure. She noted that the Israeli government has shown an increasing tolerance for escalatory actions to achieve their strategic objectives in recent weeks.

It is also worth noting that rising crude prices may not be welcomed by the current US administration or by Jay Powell, especially following his recent 50bps cut.

Bottom Line

The recent increase in oil prices, driven by geopolitical tensions and unexpected crude draws, highlights the intricate relationship between global politics and the energy market. As the situation continues to evolve, it will be interesting to see how these factors continue to influence oil prices. What are your thoughts on this development? Feel free to share this article with your friends and discuss it further. Remember, you can also sign up for the Daily Briefing, which is delivered every day at 6pm.