Listen, people are super excited about crude.
On Tuesday afternoon, we got the latest API data and it showed an impressive draw, with U.S. inventories falling by 10.2m bbl last week. That would be the largest draw since September. Of course it still has to be “confirmed” by the EIA numbers, which we’ll get later this morning.
Whatever the case – that is, whether oil ultimately ends up selling the EIA news – there’s been a confluence of bullishness over the past 72 hours between the Saudis promising to cap exports, the first signs that US operators are trimming capex plans, and now more bullish inventory data.
“They have chased the bears back into the woods. Sentiment in the market is mildly bullish,” James Williams, an economist at London, Arkansas-based energy-research firm WTRG Economics, told Bloomberg by phone on Tuesday.
It’s also worth noting that the U.A.E. has promised it will do its part going forward and to prove it, Minister of Energy Suhail Al Mazrouei (whose Twitter profile image looks like a combination of a high school yearbook picture and an 80s mall glam shot) tweeted this on Tuesday:
ADNOC notified its customers of approximately 10% reduction in the loading schedule for September
— سهيل المزروعي (@HESuhail) July 25, 2017
And so here we are, with WTI holding above $48 and Brent above $50:
“The momentum is supportive, with all indications being Cushing supplies are helping the price of crude,” Petromatrix Managing Director Olivier Jakob said on Wednesday, adding that “the possibility of disruptions to supplies from Venezuela is also getting more attention.”
Speaking of Venezuela, here’s what Barclays had to say on Tuesday:
We think Venezuela’s Orinoco heavy oil is most at risk of shut-ins should the energy sector be constrained. We estimate that trade restrictions that prevent the import of US diluent needed to transport Orinoco heavy oil to the coast could cause 300 kb/d of heavy oil shut-ins, but further declines could also occur.
A sharper and longer disruption (eg, exceeding three months) could raise oil prices at least $5-7/b and flatten the curve structure despite an assumed return of some OPEC supply, a more robust US shale response, and weaker demand. It may be just the opportunity OPEC needs to exit its current strategy. US producer hedging activity would pick up if WTI moves to $50-55, limiting price upside potential.
Whatever. For now, prices are moving in the “right” direction (which, if sustainable, would certainly help global central banks in their efforts to write-off the persistent disinflationary impulse as “transitory”). So do keep an on the EIA print to see if this market has finally managed to shake its crisis of confidence.