Oil futures: Brent down 3%, WTI 3.5% on day after US inventory build

Quantum Commodity Intelligence – Crude oil futures in European afternoon trade Wednesday were down by 3-3.5% on the day following a build in US crude stocks, while attention also switched to the upcoming OPEC+ meeting

Front-month January ICE Brent futures were trading at $82.18/barrel (1630 GMT), compared to Tuesday’s settle of $84.72/b.

At the same time, December NYMEX WTI was trading $80.95/b, versus Tuesday’s settle of $83.91/b.

Crude stocks in the US built 3.3 million barrels last week, according to EIA data published Wednesday, broadly in line with a 3.6-million barrel build estimate by the American Petroleum Industry published late Tuesday.

The figure from both the API and the EIA was double what analysts were expecting, according to polls from newswires, while gasoline stocks saw a bigger draw than the market was expecting.

Gasoline stocks were down 1.5 million barrels on the week versus expectations of a 500,000 barrel draw from the API

Crude futures were in downward pattern throughout the day following the API guesses, with both Brent and WTI trading at near three-week lows.

But the spread between the two global benchmark sweet grades has grown on the stock build, with US crude falling more than the international benchmark of Brent, which is being supported by fears that OPEC+ may not be able to boost output.

Thursday’s OPEC+ meeting has largely been priced in with expectations for a 400,000 bpd day increase in December

However, questions have been raised as to whether the producer group can even keep up with planned increases, unless those with known additional capacity, including Saudi Arabia, are assigned higher quotas.

“Production surveys for October reveal OPEC is not even managing to achieve the agreed production increase,” said Commerzbank, noting that OPEC fell short on October targets, primarily due to production shortfalls in West Africa.

Meanwhile, the global demand recovery was confirmed by an unexpected channel on Tuesday when BP said in a conference call following its Q3 results that demand had already exceeded 100 million/bpd and consumption would top 2019 levels next year.

On the downside, rising Covid-19 cases in China added to the broader downturn.

“China is also blasting out bearish signals as a new local breakout of Covid-19 has sent case numbers to a 3-month high, which given China’s zero-tolerance policy, will prompt restrictions that will weigh on oil consumption,” noted Rystad Energy

Forward oil product prices are increasingly pointing to a robust demand recovery over the coming months, helped by the relaxation of social distancing measures in several prominent Asian countries.

Last week, calendar spreads in the jet and gasoline markets hit their highest levels since before the pandemic, Quantum data showed, while diesel spreads were not far below the peak reached in mid-October.

The spot gasoline market looks particularly strong in Asia, with prompt cargoes reaching a peak of almost $8/b above M01 swaps on Monday, a tripling of the differential in just a few weeks.

The physical market strength has extended forward into November, with the month’s Gasoline 92 RON FOB Singapore swaps trading $4/b above December values, while December has also risen against January.

Over in Europe, November Eurobob E5 paper was trading around $20/mt above December paper this week at a time when demand is expected to cool in winter months.

Spot cracks for Eurobob barges in ARA hit a year high above $17/b on Monday.

In jet fuel, the November-December trading months appear particularly strong

with prompt swaps rising last week to pre-pandemic highs, signalling rising optimism about a recovery in travel following the US and other countries’ decisions to reopen borders.

The Jet CIF NWE Nov/Dec spread rose above $5/mt for the first time in years on October 25-26, before retracing some of its gains, while the Dec/Jan spread rose above $6/mt this week.

The same optimism can be seen in Asia, with prompt spreads now well above $0.50/b, from parity at the start of September.

Last month, Australia, Korea and Japan all agreed to relax their zero-Covid approach and eased social distancing measures, whereas in China recent lockdowns appear to have had a limited impact on oil demand so far, although the world’s biggest oil consumer is facing its toughest challenge yet.

Quantum estimates that 14% of the Chinese population is now subject to a form of mobility restriction, following Heilongjiang’s decision to curb movements over the weekend.

Goldman Sachs said last week oil demand has already surpassed 99 million bpd and will shortly match pre-Covid consumption of 100 million bpd, as Asia bounces back from the Delta wave that has kept economic activity subdued in recent months.

The bank, which has released several bullish forecasts since the start of the year, maintained its base-case $90/b outlook for the balance of this year but said oil-to-gas switching could further lift prices.

Oil major BP was more bullish this week, saying demand had already passed 100 million bpd, just short of pre-pandemic levels.