WTI pulls back from near-$61.00 highs to the low-$59.00s but stays in the green

• WTI pulled back from near-$61.00 session highs to the low-$59.00s on Tuesday but managed to stay in the green.
• The latest API inventory report was bearish and contributed to some late selling pressure.

Though front-month WTI futures gave back the lion’s share of the days on Tuesday, falling back from highs in the $60.80s to end the session at $59.20, they still managed to close out the day with gains of nearly 1.0% or over 50 cents. WTI continues to trade around the midpoint of the last two weeks low-$57.00 to $62.00ish range.

API Inventory Recap

Crude oil markets came under selling pressure in the run-up to the close of Tuesday futures trade at 22:00BST in wake of an on-balance bearish weekly API crude oil inventory report. According to API, headline inventories saw a larger than expected draw of 2.6M barrels (expectations were for a draw of 1.4M barrels). However, the bullish headline was more than negated by much larger than expected builds in both gasoline inventories (of 4.55M barrels versus forecasts for a 0.2M barrel draw) and distillate inventories (of 2.81M barrels versus forecasts for a much more modest 0.5M barrel build). Crude oil market participants will now look to Wednesday’s official EIA inventory data release (at 15:30BST) for confirmation. Crude oil prices are again likely to be choppy.

Driving the day

Note that crude oil markets had already been on the back foot prior to the inventory data release. Indeed, between the hours of 16:00BST and 19:00BST, WTI had already dropped roughly $1.50 from the $60.70s to low $59.00s. Some market commentators attributed the selling to positive US/Iran headlines and related concerns that Iranian crude oil exports could return to the market sooner than expected.

Note the US and Iran engaged in indirect talks on Tuesday in Vienna, which were hailed as a positive step in the right direction by the US administration. However, US officials have also warned not to expect a deal to happen anytime soon, reiterating that they want to see Iran deviate from their “maximalist” stance demanding that the US end all sanctions before they resume compliance with the JCPOA nuclear deal. In other words, it may take some time before the two sides are able to find a compromise.

“With OPEC+ appearing to manage its exit for now, supply concerns will likely shift to the potential return of Iran to the JCPOA agreement” said analysts at Goldman Sachs. However, the bank thinks that the path to an agreement is still likely to take months and that other OPEC+ producers would accommodate a potential ramp-up in Iranian production. As such, the bank does not “see the potential recovery in Iran exports as an exogenous shock to the oil market”.

Elsewhere on Tuesday, the economic news has been positive; IMF’s latest World Economic Outlook report contained a bullish set of new forecasts for global growth. This comes following three consecutive sessions of strong tier one US economic data, plus we also had Chinese Services PMI numbers for the month of March last night, which were also strong.

Meanwhile, the US Energy Information Agency just released its latest Short-Term Energy Outlook report in which it brought forward 180K barrels per day in oil demand growth expectations from 2022 into 2021, a reflection of expectations for a swifter economic recovery. For reference, the 2021 global demand growth forecast was upped by 180K to 5.5M barrels per day and the 2022 global demand growth forecast was downgraded by 180K barrels per day to 3.65M barrels per day.