WTI and Brent are now at the highest level of the year as even this week’s fundamental snapshot (basis API) was bullish. The battle of views continues with the view that the market is already in a rebalancing pattern continuing to dominate the narrative as well as the short-term direction of the market. Unless there is a more consistent pattern of bearish current fundamentals the upside rally is likely to continue.
Crude oil prices are retracing this morning after another build in U.S. crude oil stocks reported by the API late yesterday afternoon along with news that the Kuwait oil workers’ strike is over after three days. Kuwait production is going to ramp up quickly with Reuter’s reporting that production already increased by 500,000 bpd today with expectations that Kuwaiti production will reach the average March level in a few more days.
President Obama is landing in Saudi Arabia to try to smooth over sour relations with America’s long-term ally, Saudi Arabia. While the crude oil market is selling off overnight on renewed concerns about China’s economy and the ending of the Kuwaiti oil strike, this meeting today may have more of a long term impact on the future of oil prices then some of these short term factors.
Crude prices are mixed with crude oil and heating oil starting the trading session in negative territory while gasoline is positive on the day. The main driver in the overnight trading period and into this morning is the mixed inventory report released by the American Petroleum Institute late yesterday afternoon. They reported a huge build in crude oil stocks (but a draw in Cushing) with declines in refined product inventories.
As crude oil prices mount a rebound against a backdrop of oil company bankruptcies and rig count cuts, the focus turns to how quickly U.S. energy producers will respond to rising prices. The bearish argument is there will be a cap on prices because as soon as prices start to rise, producers will bring rigs back on line and cap prices. Yet, this argument really does not address the longer term structural damage that has occurred in the energy space.
Crude oil prices are recovering after a few days of weakness after a smaller than expected build in crude oil stocks reported by the API late yesterday evening. On the other hand, distillate and gasoline inventories declined less than projected. Overall I would categorize the API report as more near neutral but the market is once again embracing a data point that is not very bullish.
Global oil inventories are forecast to increase by an annual average of 1.6 million barrels per day in 2016 and by an additional 0.6 million b/d in 2017. These inventory builds are larger than previously expected, delaying the rebalancing of the oil market and contributing to lower forecast oil prices.
Crude oil prices rose on reports that the Russian Oil Minister said that a “critical mass” of oil producers had agreed to freeze production, but will it be enough as U.S. oil supplies continue to rise?