Oil prices drop as Egypt situation stabilizes

Late yesterday afternoon the API released their latest inventory assessment. The API released a mixed inventory report. The API reported builds for crude oil and gasoline and a modest draw in distillate stocks. The API reported a crude oil inventory build of about 3.8 million barrels even as refinery utilization rates increased strongly by 3.5% to 83.2% of capacity. The API also reported a decline in crude oil imports but builds in both PADD 2 and Cushing, OK. They also showed a strong build in gasoline stocks of about 3.9 million barrels while distillate fuel stocks declined by about 1.1 million barrels as the weather last week in the main heating oil consuming part of the US was modestly cold. The results of the API report are summarized in the following table. So far the reaction to the API report has been mildly bearish as prices have decreased in overnight trading. In fact if today’s EIA report is in sync with the API report it could result in a modest push to the downside, especially if the Egyptian situation continues to stabilize.

My projections for this week’s inventory reports are summarized in the following table. I am expecting a mixed report for US oil stocks. I am expecting another strong build of about 2.2 million barrels of crude oil inventories mostly as a result of the industry readjusting inventories after managing end of year stock levels as well as a modest increase in imports. If the actual numbers are in sync with my projections the year-over-year surplus of crude oil would widen to 16.1 million barrels while the overhang versus the five-year average for the same week will also widen to 21.9 million barrels.

With runs expected to only increase by about 0.1% and with imports expected to increase a bit, I am expecting a modest increase in gasoline stocks. Gasoline stocks are expected to build by about 1.5 million barrels even as refiners continue to focus their attention to the colder than normal winter heating season that has been in play so far. This week the gasoline year-over-year surplus is projected to widen of around 3.1 million barrels while the surplus versus the five-year average for the same week will narrow to about 8.4 million barrels. Gasoline inventories have turned the corner after going through a decent destocking phase. Gasoline stocks will have built for five weeks in a row if my projection for another build this week is in line with the actuals.

Distillate fuel likely declined modestly by 0.7 million barrels mostly as a result of the colder than normal temperatures we have been experiencing in the eastern half of the US. The latest short term temperature reports are still showing persistent cold temperatures along most of the US with extremely bitter cold weather hitting this week in many of the large population centers in the eastern half of the US. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year will likely now be about 7.4 million barrels above last year while the overhang versus the five-year average will be around 23.9 million barrels.

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