Oil stocks build as traders look for next price driver

The API report showed a much larger than expected build in crude oil stocks, a surprise build in gasoline stocks but a larger than expected decline in distillate fuel inventories. The API reported a strong build (of about 3.6 million barrels) in crude oil stocks versus an expectation for a modest build in crude oil inventories as crude oil imports increased even as refinery run rates also increased by 0.9%. The API reported a modest build in gasoline stocks and a surprise draw in distillate stocks versus an expectation for a more seasonal draw in inventories.

The report is biased to the bearish side. The market has drifted lower since the report has been issued but on relatively low volume. The market is always cautious on trading on the API report and prefers to wait for the more widely watched EIA report due out tomorrow. The API reported a build of about 3.6 million barrels of crude oil with a build of 1 million barrels in Cushing and a draw of about 0.6 million barrels in PADD 2 which is neutral for the Brent/WTI spread. On the week gasoline stocks built by about 1.3 million barrels while distillate fuel stocks decreased by about 1.5 million barrels. 

Chart 3

My projections for this week’s inventory reports are summarized in the following table. I am expecting a mixed inventory report this week with a modest build in crude oil and a decline in both gasoline and distillate fuel stocks along with a modest increase in refinery utilization rates. I am expecting a draw in gasoline inventories as well as a modest decline in distillate fuel stocks even as winter like weather was absent for most of the US during the report period...in particular the east coast. I am expecting crude oil stocks to increase by about 2.5 million barrels. If the actual numbers are in sync with my projections the year over year deficit of crude oil will come in around 6.9 million barrels while the overhang versus the five year average for the same week will narrow to around 5.4 million barrels.

Even with refinery runs expected to increase by 0.3% I am expecting a modest draw in gasoline stocks. Gasoline stocks are expected to decrease by about 1.4 million barrels which would result in the gasoline year-over-year surplus coming in around 8.5 million barrels while the deficit versus the five-year average for the same week will come in around 9.2 million barrels.  

Distillate fuel is projected to decrease by 0.2 million barrels on a combination of steady exports but warmer than normal weather last week. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year will likely now be about 16.9 million barrels below last year while the surplus versus the five year average will come in around 2.4 million barrels.

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