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Oil prices were up this morning, a brief respite after yesterday's tumble (and 'death cross'). This came after API reported an unexpected crude build.

“Recession woes, weak Chinese export/import data and COVID-related lockdowns are the primary price drivers at the moment,” said Tamas Varga, an analyst at PVM Oil Associates Ltd.

Oil’s deep loss on Wednesday came despite several supportive market factors. Russian President Putin said the country would not supply energy to any nations that backed a planned US-led price cap on the nation’s crude. As well, the EIA raised its outlook for global oil demand while also cutting the forecast for US supply.

API

• Crude: +3.645 million (+300 thousand expected).
• Cushing: -772 thousand.
• Gasoline: -836 thousand.
• Distillates: +1.833 million.

DOE

• Crude: +8.845 million (+300 thousand expected). This has been the biggest build since April.
• Cushing: -501 thousand.
• Gasoline: +333 thousand (-1.4 million expected).
• Distillates: +95 thousand (+200 thousand expected).

After API reported an unexpected crude build, the official data confirmed it was even bigger with a 8.85 million barrel build. Additionally, gasoline and distillates also saw builds.

Source: Bloomberg

The 8.8 million barrel build in commercial crude stockpiles was mostly offset by the withdrawal of 7.5 million barrels from the Strategic Petroleum Reserve. The net result was a nationwide crude build of just 1.3 million barrels in the week to Sept. 2. That’s the first build in total nationwide crude stockpiles in four weeks and the biggest build in two months.

Source: Bloomberg

Last week saw a 7.5 million barrel draw from the SPR and a record 18.75 million barrels drawn down in the last three weeks to its lowest since 1984.

As Bloomberg reports, gasoline demand sunk below 2020 seasonal levels, again, based on the four-week moving average of product supplied. The figure has flat-lined all summer, holding below 9 million barrels a day in all weeks but one since June.

As rig counts begin to drop, US crude production remains flat.

Source: Bloomberg

WTI hovered around $83 ahead of the official data and slid on the big crude build.

WTI also remains well below the 'death cross' level.

Finally, we note that WTI’s prompt spread slumped to its weakest level since early January on Wednesday amid a sharp retreat in front month crude prices.

This is traditionally a bearish sign of urgent demand (higher prompt spread suggests physical tightness) - which may be yet another reason why OPEC+ is willing to cut production (and continues to argue that physical and paper markets remain decoupled).

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