WTI Holds Rebound Gains As US Fuel Exports Hit Record High, Production Dips, Huge SPR Drain

Oil prices are lower overnight (but dramatically off their lows) amid on-again, off-again optimism of an imminent US-Iran peace deal.

Benchmark Brent fell as much as 12% to $96.75 a barrel in London, while West Texas Intermediate dropped up to 13%. European natural gas plunged as much as 14%.

Oil and gas later pared about half of those losses after Trump said in a Truth Social post on Wednesday that if Iran doesn’t agree, “the bombing starts.”

Overnight we saw huge across the board drawdowns in US energy inventories reported by API (and a huge SPR drain). All eyes on the official data this morning...

API

• Crude -8.1mm (-2.8mm exp)

• Cushing -1mm

• Gasoline -6.1mm

• Distillates -4.6mm

DOE

• Crude -2.313mm (-2.8mm exp)

• Cushing -648k

• Gasoline -2.504mm

• Distillates -1.294mm

For the second week in a row, US inventories saw significant declines across the board with products seeing the biggest draws. Crude's drawdown was a modest disappointment (especially after API's big report)...

Source: Bloomberg

Overall, crude stockpiles remain elevated (but are drawing down)...

Source: Bloomberg

Perhaps most notably, the Strategic Petroleum Reserve (SPR) is seeing massive drawdowns to support the global loss of supply from Hormuz.

Source: Bloomberg

On the back of that draw, Bloomberg's energy guru, Javier Blas, dropped this stunning chart showing that, on a 7-day moving average, global oil liftings (into tankers) have recovered to their pre-war level due to a surge in liftings in the Americas. Of course, that's helped by massive stock drawdowns / SPR drain, but still...

Additionally, last week saw US crude exports actually decline (after nearing the unprecedented level of 100 million barrels in 7 days). The decline in crude cargoes headed overseas pulled down overall US oil and fuels exports from record high levels also set the week earlier, even as fuel exports rose to the highest weekly level ever.

Source: Bloomberg

The US has sent out at least 1.5 million barrels of diesel a day since the week of April 3.

US crude production continued to trend lower...

Source: Bloomberg

WTI fell dramatically below $100 overnight but amid Trump's 'bombastic' comments and Iranian denials, pries are well off their lows

“The oil price is reacting on shift in sentiment instead of market balances, driven by news of a potential deal between the US and Iran,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich.

“It remains unclear when flow through the strait would resume.”

Still, any breakthrough in peace talks will take much longer to filter through to energy markets.

“When the Strait opens we do believe it will take half a year for oil to get back to normal,” Equinor Chief Financial Officer Torgrim Reitan said on the company’s quarterly earnings conference call.

“For gas, it will take much longer.”

And that's important for the Midterms...

The 4-week moving average for US gasoline implied demand ticked higher week-on-week, but the more volatile weekly data showed a weekly decline and dipped below the 5-year average.

It is too early to tell, but elevated gasoline prices could be finally eating into demand.

Trump has repeatedly claimed prices will come down rapidly once the Strait is reopened - we shall see.