WTI picking up towards $61.50 in wake of eye-watering EIA inventory numbers

Crude oil markets trade higher on Wednesday, having so far shrugged off nerves being observed in US equity markets (S&P 500 down 0.6%) and in other commodities (Copper down 1.8%, Gold down 1.4%), which are seemingly being caused by a pick up in US government bond yields (10-year yields currently up over 7bps on the day to close to 1.49%) and in the US dollar (the DXY has poked above 91.00 again from earlier session lows in the 90.60s).

WTI has been picking up in recent trade following an initially choppy reaction to the release of the latest weekly EIA inventory data. Meanwhile, bullish commentary from the US President on the vaccine rollout there as well as bullish comments from OPEC+ sources are also being cited as behind crude oil market outperformance.

As a result, the American benchmark for sweet light crude oil, called West Texas Intermediary or WTI, is up over $1.50 on the day and has recently advanced above the $61.50 level. That means WTI has broken above its previous intra-day $59.50ish-$61.00ish range that had been in play since Tuesday. However, clarity on the OPEC+ situation is likely going to be needed in order for the market to continue to the upside and challenge recent $63.50 cycle highs.

Driving the day

WTI has seen upside in wake of an extraordinary weekly EIA crude oil inventories update; in the week ending on 26 February, crude oil stocks saw a record 21.5M barrel build. However, that build was mirrored by a 13.6M draw in gasoline stocks (the largest since 1990) and a 9.7B draw in distillate stocks. Refinery utilisation was down 12.6% compared to the week prior.

The data was indicative of the fact that recent weather events in the South of the USA (i.e. the deep freeze that sent states like Texas into chaos for nearly two weeks) proved more disruptive to oil refining activity than they did to crude oil production; hence why gasoline stocks saw a such a massive draw (amid interrupted supply of usable fuel from the refineries) and crude oil stocks saw such as a massive draw (nowhere for the crude to be refined into usable fuel amid outages at refineries).

Also in focus; Wednesday’s meeting of the Joint Ministerial Monitoring Committee (or JMMC), who always meet prior to every OPEC+ meeting, ended with no policy recommendation for the leaders of the cartel. The latest sources from the JMMC discussion suggest a split in the group, with some member states pushing for a larger increase in production and other wanting to take a more cautious approach. Some member states reportedly support the option of rolling over current output quotas into April – when Reuters reported this earlier on during Wednesday’s session, crude oil markets saw upside. Finally, the Saudi Arabians are reportedly still deciding on how to phase out their voluntary 1M barrel per day in oil cuts in February and March.

Meanwhile, bullish comments from US President Joe Biden have also been cited as lifting sentiment in crude oil markets. The US President reportedly said that the country would have enough Covid-19 vaccines for every adult to receive their first vaccine by the end of May, after pharmaceutical giant Merck & Co agreed to participate in the production of Johnson & Johnson’s recently approved Covid-19 vaccine.

Elsewhere, US data has been in focus but seems not to have impacted sentiment in crude oil markets much. The recently released February ISM Services PMI survey was underwhelming, with the headline index dropping to 55/3 versus expectations it would remain steady at 58.7. The subindices also showed weakness, with Business Activity dropping to 55.5 from 59.9 in January, Employment dropping to 52.7 from 55.2 in January and New Orders dropped nearly 10 points to 51.9 from 61.8. Capital Economics thinks the weakness represents severe winter weather conditions seen across the country last month. Meanwhile, Prices Paid shot higher to 71.8 from 64.2 amid supply shortages, a jump which Capital Economics thinks may foreshadow an increase in Core PCE to about 2.4% within the next few months.

Sticking with the theme of US data, Wednesday also saw the release of ADP’s estimate of the number of jobs added to the US economy in February; their estimate suggests the economy gained 117K jobs, lower than expectations for their estimate to show a job gain of 177K jobs. Capital Economics note that this data was a disappointment given that “the drop-off in coronavirus case numbers and the resulting lifting of containment measures should be giving the economy a bigger shot in the arm”. The economic consultancy continues that “the disappointing ADP figure presents a clear downside risk to our otherwise above-consensus estimate that non-farm payrolls increased by 500,000 last month”, but they caveat that “given the ADP's patchy correlation with the official employment data and the strength of the high-frequency data, we are happy to stick with that estimate”.