Oil prices are posting only marginal losses today as the market is just lightly trimming the excess gains of a good week for the oil market.
Wednesday’s gains were a bit excessive, but they were built on valid grounds, as several high-profile reports forecasted demand growth for the second part of the year and as crude stocks in the US surprised traders with quite significant draws.
Today the market is holding on to these gains, only cutting down on the froth from this week’s enthusiasm.
However, yesterday’s reported US crude inventory draw was not caused by strong demand for crude. US refinery runs last week were nearly unchanged on the week, so was production, while net imports were up week-on-week caused by a large drop in weekly US crude exports.
Instead, the draw was caused by a huge 1 mmbpd “swing” in the “Unaccounted for oil” segment, basically the discrepancy in the EIA’s model between “reported” supply and demand.
What caught traders’ attention, and a result of this inventory draw, is that US crude storage came below year-ago levels for the first time in 12 months.
It is unsure whether the weekly US gasoline demand is actually as strong as the EIA reports at 9.6 million bpd, as real-time traffic data do not yet suggest that strong consumption levels.
Nevertheless, the market is cheering and the outlook for the summer driving season seems very strongly aligned with the rapid vaccination campaign in the US.
Markets do not seem too concerned with the claimed Houthi rebel missile attack on the Jazan in Saudi Arabia, home to the newly started 400,000 bpd Jazan refinery.
Run rates are still low and no damage was reported, but the risk of future attacks will be omnipresent, keeping traders on their toes.
The key geopolitical topic in oil is still Iran, where the recent attack on the Natanz nuclear enrichment facility adds to the complications of brokering an acceptable deal from both sides.
Talks continue in Vienna today with the P5+1 and Iranian envoys, the third meeting in 10 days, but the sides are still far apart. The market knows this and is sanguine about an immediate return of the full 1.5 million bpd of shut-in Iranian production capacity due to US sanctions.
Most market focus is and will likely remain on the demand recovery in the US and the Western hemisphere. Meanwhile on the Eastern hemisphere the lockdowns in India have not yet resulted in any significant drop in road fuels demand, but more is likely in store.
The IEA and OPEC upwards revisions for global demand growth this year, which continue to support sentiment today, may be in for downwards revisions before long. But the recovery in demand is coming and oil price increases with it – the road is just a bit winding on the way there.