Oil watching Greece and waiting on Fed

My projections for this week’s inventory reports are summarized in the following table. I am expecting a mixed report with a modest decline in crude oil stocks as a result of another week of reduced imports and a small increase in refinery utilization rates. I am expecting a modest build in both gasoline inventories and distillate fuel stocks. I am expecting crude oil stocks to decline by about 1.3 million barrels. If the actual numbers are in sync with my projections the year over year surplus of crude oil would move into a small deficit of about 0.9 million barrels while the overhang versus the five year average for the same week will also narrow to 20.8 million barrels. My projection risk for crude oil is to the upside as stocks could have actually built depending on the combination of how much additional crude oil came through the Keystone pipeline versus the level of refinery runs in PADD2.

If the inventories are in line with the projections I would expect to see another decline in both PADD 2 and Cushing crude oil stock levels which would potentially impact the Brent/ WTI spread. Since peaking around June 15th the spread has narrowed by about $4.50/bbl. As I discussed in last week's newsletter I expect the spread to continue to narrow. With the WTI contango not very economical for storing oil and with US refiners gradually increasing refinery utilization rates... inventories in this region are looking like they are entering a destocking pattern. PADD 2 stocks are now back down to earlier year levels when the spread was trading in a range of $12 to $14/bbl premium to Brent. If stocks continue to decline I would expect the low double digit level as the next target for the spread during what looks like the correction phase.

With refinery runs expected to increase by about 0.2% I am expecting a modest build in gasoline stocks as demand likely decreased while imports possibly increased. Gasoline stocks are expected to build by about 1.0 million barrels which would result in the gasoline year over year deficit narrowing to about 1.5 million barrels while the surplus versus the five year average for the same week will widen to about 7.2 million barrels. All eyes will be focused on the gasoline number once again this week after last week's surprise build in stocks for the fifth week in a row.

Distillate fuel is projected to increase modestly by 0.5 million barrels on a combination of no weather demand as well as an increase in production. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year will likely now be about 15.6 million barrels below last year while the overhang versus the five year average will be around 6.2 million barrels.

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