WTI Maintains Uptick Despite Unexpected Crude Build

Oil Prices Continue to Climb

Despite geopolitical tensions, oil prices are on the rise. This is due to an overnight crude draw reported by the American Petroleum Institute (API) and the Organization of the Petroleum Exporting Countries (OPEC+) denying any plans to significantly increase production. Bob McNally, founder of Rapidan Energy Group and former adviser to President George W Bush, highlighted the geopolitical disruption risk, especially concerning Israel, due to Iran's strategic positioning in the world's most significant energy region.

Crude Stockpiles and Production

There is speculation on whether the already low Cushing and total crude stockpiles will be further tested. The API reported a crude draw of 1.46mm, Cushing saw an increase of 700k, gasoline increased by 900k, and distillates decreased by 2.7mm. However, the Department of Energy (DOE) reported a significant 3.9mm barrel build in crude stocks, including an increase in stocks at the Cushing Hub. This unexpected crude build is presumably due to anticipation of Hurricane Helene's impacts.

Refinery Utilization and Gasoline Demand

Refinery utilization rates in the Midwest have dropped to 85%, the lowest since April. This is primarily due to BP Whiting undergoing maintenance. On the Gulf Coast, rates are the lowest since March because of planned work. Gasoline demand has also dropped to a four-year seasonal low following a fifth consecutive decline last week.

US Crude Production and SPR

The Biden administration added 660k barrels to the Strategic Petroleum Reserve (SPR), which, when combined with the commercial build, is the most significant increase since June. Despite this, US crude production remains near record highs.

Oil Market Analysis

Bill Farren-Price, a senior research fellow at the Oxford Institute for Energy Studies, stated that the recent escalation justifies oil's jump. However, he also noted that the conflict would need to spread to the Gulf to trigger a broader and sustained oil price rally. Helima Croft, an analyst at RBC Capital Markets, said oil traders needed to assess whether Israel would retaliate by directly targeting critical Iranian military and economic assets, including energy infrastructure.

Political Implications

There is speculation that President Biden and Jay Powell would not want to see crude prices rising, especially after Powell's recent 50bps cut.

Bottom Line

Despite the unexpected crude build, oil prices are holding their gains. The geopolitical tensions and their potential impact on the oil market are worth watching closely. What are your thoughts on this situation? Feel free to share this article with your friends. Remember, you can sign up for the Daily Briefing, which is available every day at 6pm.