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Higher In Asia As Supply Worry Weighed Against Stagflation Risk

OIL

WTI is +$0.90 and Brent is +$0.70 at writing, continuing a limited recovery from their respective two-week lows made on Wednesday as the USD (DXY) has extended a pullback from fresh 20-year highs as well.

  • To recap, WTI and Brent closed ~$3.60 and ~$2.70 weaker respectively on Wednesday for a second straight day of losses. Both benchmarks were initially sent lower after the release of U.S. EIA crude inventory data, while the Fed’s 75bp rate hike later in the session saw crude hit fresh session lows, with worry re: declining energy demand from reduced economic activity evident.
  • To elaborate on the former, the latest round of weekly EIA data pointed to a large, surprise build in U.S. crude inventories (based on WSJ estimates), alleviating some supply worry, while distillate inventories increased. Gasoline inventories saw a surprise drawdown (keeping in mind the ongoing “summer driving season”, while Cushing hub stockpiles declined.
  • Keeping within the country, U.S. oil production has topped 12mn bpd according to EIA data, the most since Apr ‘20. Expectations re: the possibility of further, significant ramping up of crude production and refining remains evidently muted however, given well-documented difficulties flagged by prominent U.S. producers, with some outlining issues with supplying operations/expansion amidst supply chain disruptions.
  • Elsewhere, the International Energy Agency (IEA) published their monthly report on Wednesday, further pointing to tightness in global crude supplies in the near-term. World demand for crude is forecast to surpass pre-pandemic levels in ‘23 (thus rising to record levels), while the IEA highlighted that global crude supplies are unlikely to keep up amidst Russian output decreases, and various oil producers continuing to hit production caps. A note that this comes after OPEC on Tuesday projected global crude demand to surpass pre-pandemic levels in ‘22.
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WTI is +$0.90 and Brent is +$0.70 at writing, continuing a limited recovery from their respective two-week lows made on Wednesday as the USD (DXY) has extended a pullback from fresh 20-year highs as well.

  • To recap, WTI and Brent closed ~$3.60 and ~$2.70 weaker respectively on Wednesday for a second straight day of losses. Both benchmarks were initially sent lower after the release of U.S. EIA crude inventory data, while the Fed’s 75bp rate hike later in the session saw crude hit fresh session lows, with worry re: declining energy demand from reduced economic activity evident.
  • To elaborate on the former, the latest round of weekly EIA data pointed to a large, surprise build in U.S. crude inventories (based on WSJ estimates), alleviating some supply worry, while distillate inventories increased. Gasoline inventories saw a surprise drawdown (keeping in mind the ongoing “summer driving season”, while Cushing hub stockpiles declined.
  • Keeping within the country, U.S. oil production has topped 12mn bpd according to EIA data, the most since Apr ‘20. Expectations re: the possibility of further, significant ramping up of crude production and refining remains evidently muted however, given well-documented difficulties flagged by prominent U.S. producers, with some outlining issues with supplying operations/expansion amidst supply chain disruptions.
  • Elsewhere, the International Energy Agency (IEA) published their monthly report on Wednesday, further pointing to tightness in global crude supplies in the near-term. World demand for crude is forecast to surpass pre-pandemic levels in ‘23 (thus rising to record levels), while the IEA highlighted that global crude supplies are unlikely to keep up amidst Russian output decreases, and various oil producers continuing to hit production caps. A note that this comes after OPEC on Tuesday projected global crude demand to surpass pre-pandemic levels in ‘22.