WTI Maintains Momentum Despite API Reporting Crude Build, Product Draws

Oil Prices Rally Amidst Chinese Demand and Middle Eastern Conflict

Oil prices have seen a rally for two consecutive days, counteracting some of the significant losses experienced last week. This surge in prices is attributed to encouraging prospects for demand from China, and the ongoing worries that the conflict in the Middle East could disrupt crude flows from the region. Rebecca Babin, a senior energy trader at CIBC Private Wealth Group, commented on the situation. She noted a constant tug-of-war between the potential for a cease-fire, which could reduce the geopolitical risk premium, and the apprehensions regarding a possible escalation. She also mentioned that the current environment is highly volatile, with traders operating under low risk thresholds, leading to significant price fluctuations.

Impact of Hurricane and Demand

While the overall data is likely still being impacted by hurricane-related effects, traders are on the lookout for any indications of real demand increasing.

API Reports

According to the API, the crude increased by 1.64mm, which is more than the 800k expected. On the other hand, gasoline saw a decrease of 2.02mm, which is more than the 1.3mm expected. Distillates also decreased by 1.48mm, slightly less than the 1.6mm expected. Despite the rise in crude stocks, products experienced significant drawdowns, and the Cushing hub returned to drawdowns.

WTI Trading and Middle East Conflict

WTI was trading around $71.50 before the API print and experienced a slight decrease afterward. Crude has had a turbulent month, with Brent fluctuating in a range of more than $11, as the war in the Middle East raises the potential for disruptions to supplies.

Oil Balance Outlook

ING analysts Ewa Manthey and Warren Patterson provided their outlook in a note, stating that assuming no supply disruptions in the Middle East, the oil balance appears increasingly comfortable through 2025. They added that with the market returning to a sizable surplus, the front end of the curve should move into contango, indicating oversupply. At the same time, China, the top importer, has implemented measures to support growth with stimulus. However, investors remain cautious that the global oil market may swing to a surplus in the coming quarters.

Bottom Line

The oil market is a complex and volatile environment, influenced by a multitude of factors ranging from geopolitical tensions to demand and supply dynamics. The recent rally in oil prices, driven by Chinese demand and Middle Eastern conflict, is a testament to this complexity. But with potential oversupply on the horizon, it remains to be seen how the market will adjust. What are your thoughts on this situation? Feel free to share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.