An unexpected jump in gasoline stocks, along with Delta COVID-19 variant concerns and OPEC+ producer group supply uncertainties, are pulling crude oil lower, even as crude oil inventory declines by much more-than-expected. As such, WTI crude has migrated below the $73.50 level. However, a sharper decline, nor a big rally are likely until the market hears details on how OPEC will introduce their spare capacity into the market. If the producer group limits supply increases by more than is currently expected, WTI could well challenge $80, Bart Melek, Head of Commodity Strategy at TD Securities, reports.
Large inventory draw supporting crude, but no breakout until OPEC+ has its say
“A large 6.7 million inventory draw (vs expected 3.85 million) is helping crude oil to stay within a very tight range immediately after the release of the Petroleum Status Report. At the same time, and despite the 151K b/d increase in product demand, the latest fuel inventory data suggest refiners may have jumped the gun when it comes to demand recovery, as they increased utilization rates by a higher-than-expected 0.7 percent. The recent inventory build in gasoline (+1.5 million vs -0.9 million expected) suggest some stockpiling ahead of summer demand, but gasoline inventories are starting to look particularly bloated relative to the 2015-2019 average. And, it should be remembered that there is no shortage of crude, as OPEC+ has plenty of spare capacity to match demand.”
“Beyond the very short-term, we expect a tight supply-demand environment and prices challenging recent highs. We would not be surprised to see WTI challenge the $80/b mark, if things go as expected. Despite the Delta variant risks, it is likely that the next three months will see a surge in global demand of some three million b/d. At the same time, OPEC+ will likely continue to be disciplined in how quickly they introduce sequestered capacity into the growing market. As such, the resulting deficit, which will unwind all the excess inventories, should serve as a positive over the next several months.”
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