Oil supported by stocks despite weak economy

With the financial and commodity markets still in state of confusion and uncertainty market participants may not put much emphasis on oil fundamentals, especially since there is still no clarity on the financial or external side of the equation. As such we may see the weekly inventory reports not have much of a directional impact unless they come in significantly out of sync with the projections. 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 continue to impact the market.

My projections for this week’s inventory reports are summarized in the following table. I am expecting a mixed and slightly supportive report. I am expecting a modest draw in crude oil stocks as a result of a small increase in refinery utilization rates. I am expecting a modest draw in gasoline inventories and a seasonal build in distillate fuel stocks. I am expecting crude oil stocks to draw by about 1.0 million barrels. If the actual numbers are in sync with my projections the year-over-year deficit of crude oil will widen to about 4.9 million barrels while the overhang versus the five year average for the same week will narrow to 17.1 million barrels. My projection risk for crude oil is to the upside as stocks could have actually built more strongly depending on the combination of how much additional oil came from the SPR versus the level of refinery runs in PADD2 and PADD3. If the crude oil inventories are in line with the projections I would expect to see an decrease in both PADD 2 and Cushing crude oil stock levels which could potentially impact the Brent/WTI spread.

With refinery runs expected to increase by about 0.2% I am still expecting a modest draw in gasoline stocks as demand likely increased while imports possibly decreased. Gasoline stocks are expected to decline by about 1.0 million barrels which would result in the gasoline year over year deficit widening to around 10.8 million barrels while the surplus versus the five year average for the same week will narrow to about 6.8 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 1.0 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 21.7 million barrels below last year while the overhang versus the five year average will be around 6.9 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 (excluding crude oil) along with mixed picture for implied demand. Thus based on my projections the comparison to last year will appreciate a tad in that this year's level will gain 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.

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