Oil drops on Fed minutes and surprise inventory build

Expected range of $102-$107

chart 3

At the moment oil prices are still being mostly driven by the tensions evolving in the Middle East between Iran and the West (as discussed above) and to a secondary extent based on the direction of the euro and the US dollar as well as by a view that China's economy is starting to slow. As such I am not sure many market participants are going to pay much attention to this week's round of oil inventory data suggesting that this week's oil inventory reports may not have a major impact on price direction. As such this week's oil inventory report could remain a secondary price driver at best and only impact price direction if the actual EIA data is noticeably outside of the range of market expectations for the report.

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 distillate fuel inventories and a decline in gasoline stocks along with a modest increase in refinery utilization rates. I am expecting a draw in gasoline inventories as well as a modest build in distillate fuel stocks 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 1.9 million barrels. If the actual numbers are in sync with my projections the year over year deficit of crude oil will come in around 2.4 million barrels while the overhang versus the five year average for the same week will widen to around 10.4 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 0.9 million barrels which would result in the gasoline year over year surplus coming in around 5.8 million barrels while the deficit versus the five year average for the same week will come in around 12.2 million barrels.  

Distillate fuel is projected to increase by 0.5 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 17.2 million barrels below last year while the surplus versus the five year average will come in around 3.5 million barrels.

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