Oil becomes choice asset as turmoil abounds

I am not sure it will matter much to the direction of oil prices this week, but the weekly inventory cycle will get underway today as the API data will be released at 4:30 PM EST followed by the more widely watched EIA data on Thursday morning. My projections for this week’s inventory reports are summarized in the following table. I am expecting an across the board build for US oil stocks and yet another overall build in total commercial stocks of crude oil and refined products combined. I am expecting another strong build of about 2 million barrels of crude oil inventories, mostly as a result of the industry continuing to readjust 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 come in at 10.4 million barrels while the overhang versus the five-year average for the same week will be about 17.9 million barrels.

Stock projections

With runs expected to increase by about 0.1% and with imports expected to increase a bit, I am expecting another strong increase in gasoline stocks. Gasoline stocks are expected to build by about 1.3 million barrels, which would result in gasoline stocks hovering around 20 years highs for this time of the year. This week the gasoline year-over-year surplus is projected to widen around 11.5 million barrels while the surplus versus the five-year average for the same week will widen to about 17.8 million barrels. Gasoline stocks will have built for nine weeks in a row if my projection for another build this week is in line with the actuals. If so, gasoline stocks will have increased by about 23 million barrels over the aforementioned timeframe.

Distillate fuel is projected to increase modestly by 0.3 million barrels, mostly as a result of the warmer than normal temperatures experienced last week. As has been the case for the last eight weeks or so, it is mostly diesel fuel inventories that have been rising strongly as the US economy continues to grow very slowly. The latest NOAA weather forecasts are now calling for a return to more normal winter temperatures for the upper portion of the US over the next several weeks. With the vast majority of the winter heating season now in the history books, the consistent decline in heating oil stocks may also start to perform much like diesel stocks have been over the last several months and that is to start into a premature inventory building pattern during the projecting moderation of temperatures during the second half of February. In fact heating oil stocks actually built in last week's EIA report. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year will likely now be about 8.9 million barrels above last year while the overhang versus the five-year average will be around 25.4 million barrels. Refiners are continuing to try to manage the overhang of crude oil by converting it into refined products and moving products into inventory. Net result the US continues to remain well oversupplied of just about everything in the oil complex with supply expected to remain robust for the foreseeable future.

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