At the moment with all of the financial uncertainty permeating around the global markets it is difficult to say if this week's report will impact the market. 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 even with a small decrease 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 1.0 million barrels. If the actual numbers are in sync with my projections the year over year surplus of crude oil will widen to about 10.0 million barrels but the overhang versus the five year average for the same week will narrow to 14.3 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 oil came into the US versus the level of refinery runs in PADD2 and PADD3.
If the inventories are in line with the projections I would expect to see a decline in both PADD 2 and Cushing crude oil stock levels which could potentially impact the Brent/WTI spread. Since peaking and setting another new record high two weeks ago the spread has narrowed about 15% since then but is still trading at an atypically high level of about $18.50/bbl premium to Brent. As I have discussed over the last month or so I still expect the spread to narrow but not until North Sea oil production returns to more normal levels after the August turnaround season is over. However, with US refiners gradually increasing refinery utilization rates... inventories in this region are looking like they could be 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 will be a correction phase when it finally begins (not likely until early fall or sooner if a resolution emerges in Libya before that).
With refinery runs expected to decrease by about 0.1% I am still expecting a modest build in gasoline stocks as demand likely decreased while imports possibly increased. Gasoline stocks are expected to build by about 0.3 million barrels which would result in the gasoline year over year deficit coming in around 9.5 million barrels while the surplus versus the five year average for the same week will widen to about 3.9 million barrels. All eyes will be focused on the gasoline number once again this week after last week's surprise decline in stocks for only the second time in months.
Distillate fuel is projected to increase modestly by 1.5 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 17.6 million barrels below last year while the overhang versus the five year average will be around 6.0 million barrels.
The following table compares my projections for this week's report (for the categories I am making projections) with the change in inventories for the same period last year. As you can see from the table last year experienced an across the board build in stocks so based on my projections the comparison to last year will deteriorate a tad in that this year's level will lose ground versus the same week last year. As such I do expect a noticeable change in the year over year status if the actual numbers are in line with my projections.