Back From Lows; Shanghai Sees Doubling Of COVID Cases As Mass Testing Continues

WTI and Brent are virtually unchanged at typing, with the latter returning from three-month lows earlier in the session. Both benchmarks operate around the bottom end of their respective ranges on Wed as worry re: weaker energy demand forecasts remain elevated, particularly on China’s COVID outbreak (with focus on Shanghai) and ongoing debate re: recessionary risks in the U.S. and Europe.

• To recap, both benchmarks closed $1-2 lower on Wed, hitting three-month lows in the process after extending Tuesday’s steep sell-off (WTI and Brent closed ~$9-10 lower then).
• Looking to China, lockdown fears have edged higher as fresh daily cases in Shanghai for Wed rose to 54 from 24 for Tue, the highest since May 29 (67 cases), although only two cases were found outside quarantine. More cases are expected to be reported as authorities wrap up three-days of mass testing in 12 of the city’s 16 districts.
• Elsewhere, Brent’s prompt spread remains elevated, printing ~$3.55 at typing, pointing to well-documented, persistent tightness in the near-term supply outlook for crude.
• The latest round of API inventory estimates crossed late on Wed, with reports pointing to a relatively large, surprise build in crude stockpiles, effectively negating the drawdown reported in the week prior. Gasoline and distillate inventories declined, while Cushing hub stocks rose.
• Looking ahead, EIA inventory data is due later on Thursday, with WSJ median estimates calling for a ~1.2mn bbl drawdown in crude stockpiles.