Quote of the Day
A smile is an inexpensive way to change your looks.
Oil held small gains ahead of the weekly fundamental snapshots that began late Tuesday with the release of the API data. The trading session was relatively quiet on low volume activity with minimal macroeconomic data hitting the media airwaves. The market is currently looking for a strong catalyst for guidance for the next move. With geopolitics easing a tad the more normal price drivers have been moving back to the forefront. Today was a neutral to bearish side from the economic area.
Global equities drifted lower over the last 24 hours as shown in the EMI Global Equity Index table below. The Index lost about 0.2% narrowing the year to date gain to 13.5%. Most bourses moved lower but as we have seen so far this year all of the downside moves have been relatively shallow and of short duration. Equities were a slightly bearish price driver for the oil complex.
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.
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.
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 for the same week the inventory changes are mostly in directional sync with the projections for this report. As such if the actual data is in line with the projections there will be only modest changes in the year over year comparisons for most everything in the complex except for crude oil inventories.
Even though WTI is still trading above its technical support level of around $104/bbl the market may be still in a medium term downside correction as the immediate tensions with Iran seem to be easing a tad. As such I am maintaining my view at neutral for the moment while I sit back and see how the market digests the economic news hitting the media airwaves. Even as the market seems to be in the midst of a sentiment adjustment oil continues to be driven by the evolving geopolitics of the Mideast...in particular Iran with just about all of the other normal prices drivers taking a secondary role...including fundamentals.
I am still keeping my view at neutral and bias at bearish. My overall view remains biased to the bearish side. The surplus is still building in inventory versus both last year and the five year average is going to get harder and harder to work off with only weeks until the start of spring. As such for the short to medium term I doubt Nat Gas is going to reverse the downtrend it has been in for an extended period of time. We may certainly see times when short covering rallies take hold but I do not expect a sustained trend change.
Currently markets are mostly lower as shown in the table below.
Dominick A. Chirichella