Despite Russia production-cut roll-back headlines, WTI/RBOB prices are unchanged from the huge, bearish surprise API-reported inventory surge. However, for the 2nd week in a row, DOE data was entirely opposite and showed a big crude and gasoline draw. Markets ignored the 100k b/d surge in production...

Bloomberg Intelligence Senior Energy Analyst Vince Piazza notes that a potential agreement by OPEC to increase oil output when it meets later in June is curtailing the crude rally from earlier this year, while prices in earshot of $80 a barrel weigh on demand and threaten economic growth.

Bloomberg reports that OPEC and its partners will meet next week and debate whether to restore output halted last year. Saudi Arabia and Russia have said it’s time to reverse the cuts and appear to have begun reviving supplies, but face opposition from Iran, Iraq, and Venezuela.

“There is no need for a change in the level of production,” said Iran’s OPEC governor, Hossein Kazempour Ardebili, who serves as one of the country’s representatives to the group. “Any increase should be limited to the production allocation in the agreement, which is valid to the end of 2018.”

Oil’s recent rally to a three-year peak above $80 a barrel in London has prompted warnings that prices could hurt economic growth. Yet Kazempour insisted that OPEC will resist pressure to raise production.

“The Trump administration is trying to intervene in the affairs of a sovereign organization,” he said. Such attempts have failed in the past and “they will also fail” this time.

API

• Crude +833k (-1.25mm exp)

• Cushing -730k (-900k exp)

• Gasoline +2.33mm

• Distillates +2.1mm

DOE

• Crude -4.143mm (-1.25mm exp) - biggest draw since March

• Cushing -687k (-900k exp)

• Gasoline -2.271mm (+1mm exp)

• Distillates -2.101mm

After a very bearish API report, and an extremely bearish DOE report last week, DOE data surprised across the board with the biggest crude draw in 3 months and a surprise gasoline draw. This is the 4th weekly decline in Cushing stocks in a row...

As always, all eyes will be on US crude production and the supply side of the equation and it spiked by 100k b/d to 10.9mm b/d - a new record...

That would approach world leader Russia...except that Russia just was said to boost its output to more than 11 million in the first week of June.

On the demand side, both gasoline and diesel demand tumbled in last week's data but rebounded notably this week.

Gasoline demand at a record is bullish for everyone in the supply chain, but especially for U.S. refiners with access to land-locked barrels in the Midwest.

Bloomberg Intelligence Energy Analyst Fernando Valle points out that rising refinery utilization is pushing U.S. product stockpiles higher, but gasoline margins look a lot more challenged than distillate. Coverage for distillate is at a five-year low as domestic and export demand grow with economic activity. Gasoline, on the other hand, is saddled with demand destruction caused by elevated crude prices.

Infrastructure bottlenecks have pushed WTI-Brent differentials to around $9 a barrel, with higher exports plus elevated refining demand lending support to sentiment.

And domestic bottlenecks...

WTI/RBOB prices were flat from API's bearish print but exploded higher after DOE's surprise draws...