Oil looking past API to Bernanke’s speech

As is usually the case (especially with the API data) the market was surprised by the numbers in the latest API reported released late yesterday afternoon. The API reported another large surprise in inventory except this time it was a 6.4 million barrel build in gasoline inventories as refinery utilization rates surged by 1.8% to 89% of capacity. Last week the API reported a large surprise draw in gasoline inventories of 5.4 million barrels thus completely offsetting last week's gasoline snapshot and then some. They showed a larger than expected build in inventory of distillate fuel and a larger than expected draw in crude oil stocks.

The market was expecting a small draw in gasoline stocks and a modest build in distillate fuel inventories this week. On the week gasoline stocks increased by about 6.4 million barrels while distillate fuel stocks were also higher by about 2.0 million barrels. The only bullish item in the report was the larger than expected draw in crude oil inventories of 3.3 million barrels. They also reported a big draw of about 1.5 million barrels of crude oil in PADD 2 with modest build of about 0.5 million barrels in Cushing, Ok. Crude oil stocks in the mid-west are not as high as they once were and with this week's decrease they are around the level they were at back late last year. So far the market has reacted slightly negative to the API report...mostly for gasoline... as the industry awaits the EIA report later this morning. The results of the API report are summarized in the following table. If today’s EIA report is in sync with the API report I would view it as biased to the bearish side.

With the financial and commodity markets still in state of confusion and uncertainty I would expect the externals will lead the short term direction for oil prices (and most risk asset markets) with only a secondary impact from the inventory data. My projections for this week’s EIA inventory reports are summarized in the following table. I am expecting a mixed and slightly bearish report. I am expecting a modest build in crude oil stocks even with 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 build 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 narrow to about 3.4 million barrels while the overhang versus the five year average for the same week will widen to 19.9 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. I am also expecting to see a modest decrease in both PADD 2 and Cushing crude oil stock levels which could potentially impact the Brent/WTI spread.

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