WTI Extends Losses After Large Distillates Build

Via Zerohedge

A surprise crude draw reported by API extended yesterday’s oil price gains overnight but that was slammed after leaders of OPEC+ gave fellow members an ultimatum to stop cheating on oil-output quotas or the strict measures that have revived oil prices may start to be phased out.

“Riyadh and Moscow are not kidding about implementing some form of compliance-improvement mechanism,” said Bob McNally, founder of consultant Rapidan Energy Group and a former White House official. “Without it, they walk.”

Demand hopes remain as the world slowly reopens, but any signs of faltering in OPEC+’s commitment to further production cuts will not be well received by a market pricing in anything but an ‘L’-shaped recovery.



  • Crude -2.077mm (+3.5mm exp)

  • Cushing -1.739mm – 4 weeks of draws

  • Gasoline +2.795mm (-800k exp)

  • Distillates +9.934mm (+2.8mm exp) – biggest build since Jan 2019

After a big surprise build in the prior week and API reporting a small draw, it was anyone’s guess what the official inventory data for last week would show. A bigger than expected crude draw was offset by a huge build in Distillates stocks and a surprise build in gasoline…

Source: Bloomberg

With the ongoing collapse in US oil rig counts, production fell another 200k b/d last week to the lowest since Oct 2018…

Source: Bloomberg

Bloomberg Intelligence Energy Analyst Fernando Valle added that while “a rebound in miles driven has supported optimism, but the constant build in diesel inventories paints a bleak picture for economic activity and ultimately disposable-income growth. With China’s industrial and commercial recovery stagnating just below 90% of pre-pandemic levels, consumption looks to be capped even in an optimistic scenario.”

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July WTI hovered just below $37 ahead of the official print and extended losses after the big distillates build…

Of course, OPEC+ also knows that the higher prices go, the more likely US Shale will re-ramp production, ruining the entire apparent premise of the recent geopolitical moves.

“Ultimately, it is likely that the deal is extended for one-to-two months, as non-complying countries have a large incentive to not interfere with the re-balancing and ensure the deal goes through,” said Bart Melek, head of commodity strategy at Toronto Dominion Bank.

And there are early signs of a shale rebound, with some of the largest shale players planning to bring back some output.

As Bloomberg Intelligence Senior Energy Analyst Vince Piazza warns, “we don’t think we’re out of the woods yet on storage. With WTI pushing through $35 a barrel so quickly, our fear of wells coming back on-line will be realized sooner than previously anticipated, yet demand should recover more slowly, even with summer driving season approaching.