Oil Prices Drop Despite Significant Decline in US Crude Inventories
Oil Trading at 2024 Lows
Despite oil trading at its lowest point in 2024 and a denial of last week's incorrect report that OPEC+ would increase output in October, oil prices continue to fall. This is happening even in the face of last night's API report, which indicated a significant draw of 7.4 million in crude oil over the past week, with draws also occurring in all other categories. As CTAs and the Kamala/Biden oil trading desk continue to aggressively short oil, demand remains strong. This could potentially lead to hitting tank bottoms soon.
API and DOE Reports
The API reported yesterday a crude draw of 7.4mm, gasoline draw of 0.3mm, distillates draw of 0.4mm, and Cushing draw of 0.8mm. This morning, the DOE confirmed these figures, reporting a crude draw of 6.873k, gasoline increase of 848k, distillates decrease of 371k, and Cushing draw of 1.142mm.
US Crude Stocks Decline
US Crude stocks have declined for the 9th week in the past 10, much more than expected. Meanwhile, gasoline inventories have risen slightly, reversing three weeks of draws, while distillates remained flat. What's particularly noteworthy is the continued drain of Cushing, where a few more weeks of this decline could lead to discussions about tank bottoms.
Biden Administration's Role
One reason for the large oil draw is that the Biden administration added a significant 1.8mm barrels to the SPR last week, marking the largest increase since June 2020. This has brought the total US Crude stockpile down to its lowest since January.
US Crude Production Remains High
Despite the drop in US inventories, US crude production remains at an all-time high, even with a continued decline in oil rigs.
WTI Crude Prices Extend Losses
Despite the massive draw, the collapsing US inventories, the risk of tank bottoms in Cushing, and the OPEC+ decision not to increase output, WTI Crude prices are extending their earlier losses as bears take full control of the energy complex.
Potential for Physical Oil Crisis
On the other hand, with demand remaining steady or even increasing, there are limits to how much more inventory draw can occur before a potential showdown between paper price and physical oil. This could lead to a full-blown physical oil crisis that could have significant repercussions for those shorting CTAs.
Bottom Line
The current state of the oil industry is complex, with falling oil prices despite significant draws in US crude inventories. The potential for hitting tank bottoms, the role of the Biden administration, and the risk of a physical oil crisis all add layers of complexity to the situation. What are your thoughts on these developments? Share this article with your friends to hear their opinions. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.
