Oil focused on Europe, inventory secondary

My projections for this week’s inventory reports are summarized in the following table. I am expecting a mixed report with a build in crude oil and draws in refined products along with a marginal decrease in refinery utilization rates which should result in a mostly neutral weekly fundamental snapshot. I am expecting a modest build in crude oil stocks with a small decrease in refinery utilization rates. I am expecting a modest draw in gasoline inventories and distillate fuel stocks. I am expecting crude oil stocks to increase by about 0.9 million barrels. If the actual numbers are in sync with my projections the year over year deficit of crude oil will widen to about 27.7 million barrels while the overhang versus the five year average for the same week will also widen to around 5.6 million barrels.

With refinery runs expected to decrease by 0.1% I am expecting a modest draw in gasoline stocks. Gasoline stocks are expected to decline by about 1.8 million barrels which would result in the gasoline year over year deficit narrowing to around 11.8 million barrels while the deficit versus the five year average for the same week will widen to around 5.8 million barrels.

Distillate fuel is projected to decrease modestly by 1.0 million barrels on a combination a decrease in production and a possible increase in exports. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year will likely now be about 24 million barrels below last year while the overhang versus the five year average will widen to around 3.4 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 a mixed report with a modest build in crude oil and a seasonal draw in gasoline and distillate fuel. Thus based on my projections the comparison to last year will result in a modest level of restocking for crude oil but a destocking for both distillate fuel oil and gasoline inventories.

Although WTI still trading above the $91/bbl level I have to maintain my view at neutral with my bias now toward the bearish side of the equation. As discussed above the EU is still a mess while global manufacturing data is starting to come in below expectations. That said WTI is going to have to breech the $90 to $91/bbl level in order for oil to be back in a short term downtrend. For now although I am still on the bearish side I once again do not like the risk/reward in the oil market and prefer the sidelines today until all of the news around Europe is digested.

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