WTI drops to fresh daily lows under $79.50 despite bullish inventory report

• WTI has turned lower in recent trade, breaking out to fresh daily lows despite a bullish inventory report.
• The report has perhaps been interpreted as increasing the likelihood that the Biden administration taps the SPR.

Front-month futures of the American benchmark for sweet light crude oil, West Texas Intermediary or WTI, have traded on the back foot in recent trade. WTI has broken out to fresh daily lows under the $79.50 level and is now eyeing a test of earlier weekly lows in the $79.30 region. Should that level break, a run towards monthly lows at $78.30 may be in store.

A more bullish than expected official EIA US crude oil inventory report, released recently at 1530GMT, failed to substantially alter the mood in crude oil markets. For reference; headline crude oil stocks posted a surprise draw or 2.1M barrels in the week ending on 12 November versus expectations for a build of just under 1.4M barrels. API inventory data released on Tuesday had pointed to a weekly build of 655K barrels. EIA data showed that gasoline inventories fell by 700K barrels (versus forecasts a 575K barrel draw). Distillate stocks posted an 824K barrel draw (versus forecasts for a 1.229K barrel draw).

Typically, a bullish EIA inventory report would trigger upside in crude oil prices, as it suggests stronger than expected demand for oil and its products. But analysts have argued that larger than expected inventory draws right now might encourage the Biden administration to release crude oil reserves from the US Strategic Petroleum Reserve. The administration has been threatening to do so since the start of the month when OPEC+ refused to lift output by more than 400K barrels per day in December, given their worries about high US gas and energy prices. According to the Chinese press, the US administration has asked China to release crude oil reserves as part of its talks with the US on economic cooperation. US lawmakers are divided over whether or not the SPR should be tapped, with Democrat House Majority Leader Steny Hoyer coming out in disagreement with Senate Majority Leader Chuck Schumer’s call for the SPR to be tapper over the weekend.