WTI Retains Losses Amidst Large Crude Build and Significant Gasoline Draw

Oil Prices Decline

Oil prices have taken a downturn as the optimism for increased demand from China fades and the American Petroleum Institute (API) reports a significant crude inventory build, likely due to storm-related factors. This decrease in prices has overshadowed concerns about escalating tensions in the Middle East, particularly the potential for Israel to retaliate against Iran’s oil facilities following a recent missile attack. Analysts from Morgan Stanley, including Martijn Rats and Charlotte Firkins, have noted that while increased geopolitical risks have bolstered oil prices, the underlying balance continues to weaken. The key question now is whether official data will corroborate the large builds reported by the API.

API and DOE Data

The API reported a crude increase of 10.9 million barrels, significantly more than the expected 1.95 million. Cushing saw an increase of 1.359 million barrels, while gasoline and distillates saw decreases of 557,000 barrels and 2.59 million barrels, respectively. The Department of Energy (DOE) confirmed the API's reported large crude build, albeit to a lesser extent, with an increase of 5.81 million barrels – the largest build since April 2024. Cushing saw an increase of 1.247 million barrels. The DOE also reported a significant draw in gasoline of 6.304 million barrels, the largest since November 2023, and a decrease in distillates of 3.124 million barrels. It is suspected that Hurricane Helene had a significant impact on the supply chain.

Crude Stocks and Production

Including the Biden administration's addition of 37,000 barrels to the Strategic Petroleum Reserve (SPR), this was the largest overall increase in crude stocks since April 2024. US Crude production has also risen back to record highs of 13.4 million barrels per day. Despite the official data, WTI was trading just below $72 and held those losses after the data was released.

Future Predictions

Morgan Stanley has increased its Brent price forecast by $5 to $80 a barrel for the fourth quarter of this year due to heightened geopolitical risk. Other experts have also expressed a more bullish outlook recently. Hedge fund manager Pierre Andurand suggested that crude could surge by $10-$15 in the event of an attack, while Carlyle Group’s Jeff Currie stated that oil supply risks are the highest they've been in decades. Scott Shelton, an energy specialist at TP ICAP Group Plc, noted that "the tourists are long, the options specialists are long options and the normal traders that offset that flow are nowhere to be found as they remain on sidelines."

Bottom Line

The oil market is currently experiencing a turbulent period, with geopolitical tensions, storm-related disruptions, and fluctuating demand all playing a part. It remains to be seen how these factors will continue to impact oil prices in the future. What are your thoughts on the current state of the oil market? Share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, available every day at 6pm.