Huge build in inventories ignored
You would be forgiven for not being impressed by oil lately. After all, WTI is trading just 4.5% above the August high. The move pales in comparison to some other commodities and it hasn’t done much in the past two weeks.
What makes the move so impressive to me is just how much bad news the market has endured:
- Libya coming back online and pumping 1.2m bpd
- OPEC+ not delaying the taper and instead added 500k bpd/month through March
- A raging resurgence in the pandemic sparking new restrictions throughout the developed world
- Consistent inventory builds including today’s in the US, which was the second-largest on record
Today’s EIA report showed a build of 15.189m barrels compared to a draw of 1.035m expected. There were also surprise builds in gasoline and distillates.
That’s the kind of thing that could break a market. Initially that looked like it might be the case as crude fell to $44.96 from $46.05 in seconds. However it quickly steadied and in 80 minutes had recovered the gain. It later slipped on soft risk appetite in the US but is back to $45.75.
One of the reasons for the build was a large wave of imports and relatively small exports. That suggests a timing issue could be at play and we could see a quick reversal.
That said, this is only one in a series of bearish inventory numbers and oil continues to hold up. It’s still going to be a rough few months and the 5mbpd in spare OPEC production looms but there is lots to like in the medium-to-long term.
