Risk Off Move Weighs On The Market

Energy

The oil market struggled to hold onto gains following yesterday’s bullish EIA report. Instead, a broader risk-off move across markets held oil back. The EIA reported yesterday that US crude oil inventories declined by 9.91MMbbls over the last week, which was much more than the 5.27MMbbls drawdown that the API reported the previous day, and very different from the small build the market was expecting. This was the largest weekly decline in stocks since July, and takes total US commercial crude oil inventories to just below 477MMbbls, the lowest levels since March last year. Crude oil stocks in Cushing declined for the third consecutive week, falling by 2.28MMbbls over the last week. The move lower in Cushing stocks has provided support to the WTI prompt time spread, with the Mar/Apr spread holding firm at a backwardation of around US$0.11/bbl.

The significant decline in crude inventories was driven largely by trade, with crude exports increasing by 1.1MMbbls/d over the week to average 3.36MMbbls/d. Crude oil imports fell by 981Mbbls/d over the week to average 5.06MMbbls/d, which is the lowest weekly import volume seen since late October. This decline was driven by lower flows from Canada, Colombia and Mexico, with imports from these origins falling by 775Mbbls/d, 285Mbbls/d and 247Mbbls/d respectively.

Finally, on the refined product side, refinery utilization over the week was slightly lower, with rates falling by 0.8 percentage points. Despite this, gasoline inventories still grew by 2.47MMbbls, with implied gasoline demand falling by 279Mbbls/d over the period. Meanwhile, distillate fuel oil demand held up better, and in fact increased by 479Mbbls/d over the week, which meant that distillate inventories declined by 815Mbbls.

Metals

The metals complex remained under pressure yesterday, with concern that lockdowns and other restrictions may hurt global economic growth weighing on risk assets. LME copper prices traded lower, whilst zinc led the declines with prices falling over 2% as LME inventories continued to surge for a second straight day. The latest data from LME shows that zinc exchange inventories jumped by 59.5kt yesterday, taking total stocks to 295kt, the highest level since June 2017. The majority of this addition came from Malaysia, Singapore and New Orleans.

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