Oil trades risk-on after Spanish auction despite inventory build

The API report showed a much larger than expected build in crude oil stocks for the fourth week in a row, and a larger than expected decline in both gasoline and distillate fuel stocks. The API reported a strong build (of about 3.4 million barrels) in crude oil stocks versus an expectation for a modest build in crude oil inventories as crude oil imports increased while refinery run rates also increased marginally by 0.1%. The API reported a large draw in gasoline stocks and a large draw in distillate stocks versus an expectation for a more seasonal draw in inventories.

The report is bearish for crude oil and bullish for refined products. The market has moved lower overnight since the report has been issued but on relatively low volume. The downside move in oil is more as a result of the unwinding of the spreads as discussed above. 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 3.4 million barrels of crude oil with a build of 1.2 million barrels in PADD 2 and a build of 0.6 million barrels in Cushing, Ok which is bullish for the Brent/WTI spread. On the week gasoline stocks decreased by about 2.6 million barrels while distillate fuel stocks decreased by about 2.4 million barrels. 

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 At the moment oil prices are still being mostly driven by the direction of the euro and the US dollar as well as by a view that China's economy is starting to slow. The tensions evolving in the Middle East between Iran and the West have eased a bit as another meeting is scheduled for May.  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. 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, a small decline in distillate fuel inventories and a modest decline in gasoline stocks along with a small increase in refinery utilization rates. I am expecting a draw in gasoline inventories and distillate fuel stocks as the summer planting season is very strong (increasing the demand for diesel fuel) while the export market remains robust. I am expecting crude oil stocks to increase by about 1.2 million barrels. If the actual numbers are in sync with my projections the year over year surplus of crude oil will come in around 7.1 million barrels while the overhang versus the five year average for the same week will widen to around 22.9 million barrels.

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