WTI Erases Gains Despite Big Crude, Gasoline Draws; SPR At 1987 Lows

Oil pries are up overnight as China relaxed some of its quarantine restrictions on Shanghai extending gains from the surprise crude draws reported by API. For now, all eyes are on the middle market as refineries shift their mix amid record high gasoline and diesel prices…

“Gasoline prices on the exchanges had followed the two price peaks seen on the crude oil market in March to only a disproportionate extent. Margins had increased on the diesel market in particular, partly because product stocks were and remain very low. The focus appears to be shifting as the summer driving season draws ever closer in the US: the crack spread on the diesel market has dropped back noticeably while that on the gasoline market has soared,” Commerzbank analyst Barbara Lambrecht said in a note.

Will the official data confirm API’s draws after last week’s huge official build in crude stocks?

API

• Crude -2.445mm (+1.553mm exp)

• Cushing -3.071mm – biggest draw since Oct 2021

• Gasoline -5.102mm – biggest draw since Oct 2021

• Distillates +1.075mm

DOE

• Crude -3.394mm (+1.553mm exp)

• Cushing -2.403mm – biggest draw since Feb

• Gasoline -4.779mm – biggest draw since Oct 21

• Distillates +1.235mm

This is the 7th straight weekly draw in gasoline stocks (and 14th week of the last 15) and we are seeing a major crude draw…

Source: Bloomberg

Distillates stockpiles recovered on the East Coast and nationally. Full Colonial pipes carrying maximum distillates and gasoline are moving at a much faster pace to Linden, New Jersey.

“We are getting into uncharted territory of crude inventories,” said Peter McNally, global sector lead at Third Bridge.

“It’s tricky to implement these bans at a time when demand normally picks up and inventories are low.”

The headline draw of 3.4 million barrels in crude stockpiles was supplemented by the withdrawal of another 5 million barrels of crude from the Strategic Petroleum Reserve last week. That’s 30 straight weeks of crude draws from the SPR, and there’s going to be many more of them to come.

Notably, there has been no apparent demand destruction yet from the record high gas prices at the pump… 2022 implied demand is in line with the pre-COVID seasonal average

US Crude Production rebounded last week…

Source: Bloomberg

WTI was hovering around $110 ahead of the official data, having slid back from over $112 as US equities tumbled, and after a small bounce on the draws, WTI is fading fast along with stocks

Refiners may be incentivized to maximize gasoline as gasoline cracks inched above diesel this week, but they must also balance jet fuel and diesel production.

“Despite the surge in inflation,” says BI’s Valle, “we still expect oil prices will get help from shrinking inventories, as supply struggles to catch up due to labor and equipment bottlenecks and Russian sanctions.”

Finally, with the SPR at its lowest level since 1987…

Source: Bloomberg

It appears gas prices at the pump are well on their way to $5 average national within days…

Source: Bloomberg

And that means the reciprocal slide in Biden’s approval rating.