Cushing Stocks Crash To 'Tank Bottoms', Seasonally Lowest Since 2005; SPR Sees Another Huge Drain

Oil prices have tumbled in recent days as optimism grew there would be a lasting Middle East peace agreement, which would mean supplies would be back on track - but investors are taking a breather today with prices marginally higher this morning, rising off three month lows (and the 200DMA) after Trump threatened to 'start bombing again' if he doesn't like the deal (or how Iran is behaving). Solid US macro data also helped lift oil prices (demand).

"The collapse in oil has changed the tone of global markets, supporting bonds (prices) and reducing near-term inflation pressure," noted Tickmill market strategist Patrick Munnelly.

Oil industry experts and shipping companies have warned that it will take time to restore normal operations after the waterway's near shutdown.

Crude inventories held by OECD member countries fell in May to the lowest level since 1990 as governments drew down stocks to offset the blockage of Gulf crude shipments during the Middle East war, the International Energy Agency said Wednesday.

The drawdown since the start of the conflict has reached 163 million barrels in the Organisation for Economic Cooperation and Development club of wealthy countries, the IEA said in its monthly report.

And so, all eyes on the official situation in the US today for any signs of those drawdowns slowing (API's report suggest not).

API

• Crude -8.33mm

• Cushing -1.5mm

• Gasoline +2.47mm

• Distillates -461k

DOE

• Crude -8.263mm (-3.5mm exp, -5.2mm whisp)

• Cushing -1.606mm

• Gasoline -906k

• Distillates +951k

Crude inventories fell for the 8th straight week (-8.3mm) and Cushing saw another major drop in stocks. Products were mixed...

Source: Bloomberg

At Cushing, Oklahoma, stockpiles declined for the eighth straight week, taking inventories to just above 20 million barrels. That’s the lowest inventories have been at the storage hub since October 2014, and takes us to what are considered essentially 'tank-bottoms', the point at which the hub is unable to fully operate. 

This is the lowest level for Cushing stocks for this time of year since 2005...

Source: Bloomberg

The Strategic Petroleum Reserve saw yet another massive drawdown (8.9mm barrels), down almost 75mm barrels since the war started...

Source: Bloomberg

The US rig count continues to rise along with US Crude Production (now back near record highs)...

Source: Bloomberg

WTI was trading around $76.50 ahead of the official data and rallied uyp to $77 on the report...

Finally, we note that The International Energy Agency warned on Wednesday that the conflict is causing a bigger hit to demand than previously thought, while adding in its first look at next year’s balances that it expects a renewed glut.

Crude prices are down by almost 40% from their peak during the conflict. Producers, shippers and traders are now assessing whether the interim peace agreement will prove to be durable, and how long it will take for vessel transits of the Hormuz chokepoint to be revived in earnest. Sticking points remain, including opposition in Israel, which launched the war with the US in late February.

But the scale of the price drop is already quashing concerns about a further energy-induced inflationary spike.

“This decline is not merely a reduction in the geopolitical risk premium; it is a recalibration of the global oil balance for the months ahead,” said Tamas Varga, an oil analyst at brokerage PVM.

“With oil prices tumbling, inflation expectations are likely to decline, while increases in consumer and producer prices should moderate.”

In addition to the extra supply, the selling pressure that has hit oil markets has been compounded by a clutch of factors.

Technical traders have added to bearish wagers but today's rebound comes right as Brent (briefly) dropped below its 200-day moving average for the first time since February.