Oil hanging on Iran, inventories secondary

With refinery runs expected to increase by 0.3% I am expecting a modest build in gasoline stocks. Gasoline stocks are expected to increase by about 1.0 million barrels which would result in a gasoline year over year surplus of around 1.3 million barrels while the surplus versus the five year average for the same week will come in around 7.5 million barrels.

Distillate fuel is projected to increase by only 0.4 million barrels on a combination an increase in production and lower than normal heating oil consumption. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year the deficit will likely now be about 22.6 million barrels below last year while the deficit versus the five year average will come in around 4.5 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 pretty much the same directional moves as the projections for this week's inventory report but with a significant draw in crude oil stocks. Thus based on my projections the comparison to last year will result in a minimal year over year change in refined product inventories only.

Once again we have breached resistance and are trading in triple digits for the spot WTI contract. Mostly as a result of the increased rhetoric surrounding Iran. I am keeping my view at cautiously bullish but raise the caution flag that the market will be very volatile over the next few days and prices can easily recede back below the $100/bbl mark versus WTI.

I am maintaining my view and bias at cautiously bearish. The surplus that is building in inventory versus both last year and the five year average is going to get harder and harder to work off until it gets cold over a major portion of the US and as such for the medium term I am still very skeptical as to whether NG will be able to muster any kind of strong upside rally absent some very cold weather for an extended period of time. Currently the NG market is higher as it is in the midst of a short covering rally as the weak shorts head to the sidelines as an Arctic blast hits parts of the US. I do not see this as a trend change as the mild temperatures will return in a few days.

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