‘Questioning Your Religion’: Crude Surges On API Data, Underscoring Manic Market

Somebody asked me earlier if this, out earlier today from Goldman, was a contrarian indicator:

Given the recent rebound in net speculative length from its 18-month lows, we believe, however, that a failure for these shifts to materialize soon could push prices below $40/bbl as the market tests OPEC’s and shale’s reaction functions.

The answer, at least for Tuesday, is “yes.”

WTI rallied above $45 after the EIA lowered their 2018 U.S. output forecast to 9.9m b/d from the 10.01m b/d they projected in June while leaving their 2017 forecast alone at 9.33m b/d.

“This pull-back in production is kind of wake-up call to people who thought that shale was going to be viable no matter what OPEC did,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, told Bloomberg by phone, adding that “if output doesn’t rise as much as previously anticipated, then it’s time for the bears to start questioning their religion again.”

That’s amusing for all kinds of reasons not the least of which is that this market has become so manic that bulls and bears alike are forced to “question their religion” at least twice a week.

Well, the data we got after hours will indeed prompt some bears to Michael Stipe things until tomorrow’s EIA print because according to API, crude inventories plunged by 8.1 million barrels last week. That’s compared to expectations for a 2.5 million barrel draw.

  • API Is Said to Report U.S. Crude Stocks Fell 8.13M Bbl Last Wk
  • Cushing -2.03m bbl
  • Gasoline -801k bbl
  • Distillates +2.1m bbl

Again, that will need to be confirmed tomorrow morning, but for now, it’s bullish.

“That’s certainly a bullish number if confirmed by the EIA report,” James Williams, economist at London, Ark.-based energy-research firm WTRG Economics, said after the number hit.

Crude

But before you get too excited, do recall that one of the defining features of last week’s oil trade was crude’s inability to sustain a rally on ostensibly bullish inventory data…

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